Should I pay off my student loans?
This is a tough question that I’ve been pondering ever since I graduated from undergrad in 2000. On the one hand, student loans give you the best interest rates by far. My student interest rates were only 3.5% and I was pretty sure I could do better than that with other investments elsewhere so I paid the minimum. The only reason I eventually paid off the balance of my student loan was that when I tried to refinance one of my houses and take out some equity to buy another house, my debt to income ratio was too high and I was denied for the refinance loan. So in other words, the student loans that you have will be considered as debt and can prevent you from further borrowing from banks. In a sense not getting that loan was good because it caused me to pursue other means of financing like land contracts.
So here’s another question. Let’s say you’re in school and you have some other type of debt such as credit card debt. If you take out student loans to pay off your credit cards, that’s a very good move. Of course, if the only reason you’re paying off the credit cards is so that you can go out and buy a bunch more stuff, I wouldn’t recommend that. However, if you’re serious about improving your financial situation, using student loans to pay off higher interest rate debt can be a great option.
Going back to the original question, if you are hoping to get a loan in the near future, it may be a good idea to pay off the student loans first to improve your debt-to-income ratio. If you are simply methodically investing your money in the stock market, 401(k), or mutual funds and you are sure you can get a better return than the interest rate you are paying on the student loans, I would suggest not paying them off. I waited 9 years to pay mine off simply because student loans are the best deals out there. You can’t borrow money that cheaply anywhere else.