Paying Extra on Student Loans – Learn the Pros and Cons

It’s a familiar feeling to feel trapped and frustrated by student loan debt. Survey respondents indicated that it took nearly 20 years to repay their education debt, as per One Wisconsin Institute.

That implies that in your forties, you will still be paying back your student loans if you graduated when you were 21, which sounds awful.  It can be an excellent strategy to pay off your student loans early so that you can allocate your finances towards other priorities while saving money on interest.


Doing so, however, involves making some compromises, and for all, it might not be a smart option. Are you supposed to pay extra for student loan debt? To find out if it’s right for you, keep reading.

Paying Extra on Student Loans - Learn the Pros and Cons
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Pros of Paying Extra on Student Loans

Several main benefits can mean amazing things for your finances and personal goals by paying off student loans fast.

Save Huge Money On Interest

The massive benefit of paying off student loans early is the cash you’ll save. You’ll save money on interest charges by paying off your debt ahead of time, and the savings can be significant.


For instance, at 5% interest and a 10-year repayment period, let’s assume you had $30,000 in student loans. Your minimum payment will be $318, and you would pay a total of $38,184 if you took the entire ten years to repay your loans.

It would cost you over $8,100 in interest charges. But let’s assume that in six years, not 10, you’ve been willing to pay off your loans.

You will have to pay $483 every month to pull that off, only $165 more monthly. In this calculation, you have just paid $34,787 back. You’d save $3,397 in interest payments by paying extra on your loans.


Lower Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is essential to lenders if you’re going to be buying a home or new vehicle. It is how much debt you have according to your gross monthly salary.

Lenders would like to see a DTI ratio of 43% or less in general. It can enable your DTI ratio to be over that cap if you have high student loan payments, which would keep you from being eligible for a loan.

You will decrease your DTI ratio and improve your chances of getting qualified for other loans, such as a mortgage, by paying off your loans early.

Cons of Paying Extra on Student Loans

Knowing the disadvantages and considering both the positives and negatives of early payment of student loans will make you realize whether it’s a good option or not.

Delays Establishing An Emergency Fund

An emergency fund is not something that most people have. You always an unwanted auto repair or healthcare expense away from ending up in massive debt, if you’re not one of them.

It will consume all your spare cash when you pay off your student loans rapidly, making it hard to put money into savings. The tradeoff can leave you in a dangerous position.

Paying Extra on Student Loans - Learn the Pros and Cons
Image Source: AY Magazine

Higher Tax Bill

You can eliminate the interest you have accrued on your taxes up to a limit of $2,500 as you make payments on your student loans. Even if you don’t itemize your deductions, you may claim this deduction, and it will reduce your taxable income.

You’ll no longer be able to claim this deduction after you pay off your student loans. As a consequence, you might face a tax bill slightly higher than you expected.

Bottom Line

It all comes down to personal financial condition, your monthly money needs, and your student loan payoff targets to decide to pay extra on student loans. But you can assess for yourself by taking the time to balance the advantages and disadvantages of early loan repayment.