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Are there any downsides to paying off student loans early?

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asked Feb 5, 2016 in Finance by Chloe
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The general assumption with student loans is, "I should pay them off right away" and that is what most graduates end up doing.

 

It is not a bad decision and indeed it has its advantages. Yet, there is another side to the discussion where people don't appreciate the benefits of paying early. They say it is smarter to hold off for a while before paying it off.

 

Why do this say this?

 

There are tax advantages to student loans. You can actually claim money based on your loan and ask for a return at the end of your tax year [1]. 

 

The return itself might not be high, but what other loan will give you this option anyway? Anytime you can get something as a return, you should think about it.

 

The other disadvantage is, you might be putting off other loans that have a higher interest rate. It is always better to pay off the loan that has a higher interest rate because that will cost you more. Student loans are generally lower in interest rate compared to other debt [2].

 

References

 

1) http://www.thefiscaltimes.com/Articles/2014/04/24/Pros-and-Cons-Paying-Your-Student-Loans-Early

 

2) http://www.businessinsider.com/should-you-pay-off-student-loans-early-2013-6

answered Feb 5, 2016 by kingusama92 (23,380 points)

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