Increasing your student loan payment: pros and cons

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Student loan debt is becoming an economic crisis in the U.S. When you have extra cash after your college experience, should you invest the money or pay off your student loans? This is an incredibly common question that graduates find themselves asking immediately after receiving their diploma. However, there is no ‘right’ or ‘wrong’ answer because there are pros and cons to increasing your student loan payment and paying off your student loans early. It entirely depends on you and your financial situation.

These are the pros and cons of increasing your student loan payment:


Prevent interest rate increases from skyrocketing: Interest rates are rising for both federal and private student loans. This issue can cause financial chaos when repaying student debt. Nevertheless, in increasing your student loan payments and working towards paying them off faster, you will save a substantial amount of money. The largest benefit to repaying your student loans early is the reduction of how much interest you pay overall, especially since interest will continue accruing on the remaining amount (CNBC). 


No more monthly payments: Your money will no longer be tied up with monthly payments for repaying student loans. This means, there will be no more accruing interest either. Your money can be used for investing, daily expenses, saving for retirement or even small luxuries. 


Lower debt-to-income ratio: This makes getting approved for other loans (i.e. mortgage) much easier and increases your chances of obtaining a lower interest rate on your next loan. 


Financial habits: When you are increasing your student loan payment, you are steadily working towards building positive financial habits that are bound to have a good impact on your financial future. This can also help graduates adjust to their new budgets. 


Mental advantages: It is a relief! Now that your loans are paid off, you are cleared of that lingering student debt. Whatever money you make from now on is yours to spend however you wish. There are no more monthly payments or loan defaults to worry about. That alone is freeing.


No penalty for prepaying: There are zero penalties for prepaying federal student loans with a federal student loan repayment plan. There is also no minimum payment required. Students can check the Department of Federal Student Aid for more information. When determining whether or not there is a penalty for prepaying on private student loans, students will have to contact their service lender.



Forfeit that tax advantage: The interest that you are obligated to pay on student loans may be tax-deductible, even if you can only deduct up to $2,500 every year. Therefore, — based on the interest rate you are paying annually — paying off your student loans early may not be worth it.


Higher interest rates on future loans: Now that you have successfully paid off your low-interest student loans, you may be forced to deal with a much higher rate when you need to borrow money for another purpose. Sadly, this could lead to losing money.


Totally draining: Both financially and socially. You may be draining your entire bank account in order to pay off your student loans quickly. This will impact your social activities for the foreseeable future since you will be forced to make financial cuts to your personal life (i.e. less money spent on fun things like concerts, bars, etc). 

Penalty for prepaying: Depending on the agreed contract with your private servicer, you may be forced to deal with penalties for prepaying. It’s best to contact your service lender to confirm if there are any penalties for increasing your student loan payments before you make the decision to go through with it.


In the end, there will always be pros and cons to anything you decide. Paying off your student loans is no exception. You simply have to decide whether the pros outweigh the cons. There are plenty of options when it comes to paying back your student loans. Read Student Loan Repayment: Your Options to make the best financial decision for you and get started. 


Looking for the best student loans? Check out the Top 10 Best Student Loans of 2019

Thinking about refinancing your student loans?

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Gain access to the guide on how to refinance your student loans:

Carena de Alba

Carena de Alba

Carena de Alba prides herself on her ability to graduate college completely debt free. She loves helping people minimize their student loan debt as much as possible. She is a powerhouse when it comes to personal finance.

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