I Paid Off My Student Loans Early and I Regret It: Here’s What I’d Do Differently
More than 45 million Americans are paying off student debt, with the average borrower owing $37,338 for federal loans. Those with private loans owe an average of $54,921.
Naturally, they’re eager to get out from under that burden as quickly as possible. But with an average interest rate of around 5% for undergraduates, student loans are cheaper than car loans, personal loans and home loans, and therefore don’t always qualify as toxic debt.
Student Loan Forgiveness Backfires: The $35,000 Debt Problem Plaguing Borrowers as Payments Resume
Discover: All of the States That Will Pay Off Your Student Loans
While it’s always good to eliminate interest payments when it makes sense, the tendency to demonize debt compels some student borrowers to sacrifice too much to pay their loans off early.
The following two stories come from borrowers who achieved what so many others strive for — eliminating their student debt ahead of schedule. But both did it at personal and financial costs that they now find hard to justify with the benefit of hindsight.
A Frugal Saver Sacrifices Financial Security and Life Experiences
As the co-founder of How To FIRE, a personal finance site focusing on building savings through frugal living, John Hawrylack is not a fan of debt. But thanks to college loans, he had more than his fair share — and he was all too eager to part ways with what he owed as quickly as possible.
“I had over $30,000 in student loan debt when I graduated in the fall of 2016,” said Hawrylack. “I paid it all off in early 2020. I achieved this by giving them as much as I could each month.”
Student Loan Forgiveness: 10 Expenses To Cut From Your Budget When Payments Resume
What Good Is Being Debt-Free If It Costs You Your Savings?
Hawrylack received an inheritance in late 2017 and used it to put a down payment on a home. At the time, he was making between $33,000 to $38,000 at his primary job and an additional $13,000 from a part-time job. But he wanted more — and he saw dollar signs in his new living space.
“I rented out one room at first, then two,” said Hawrylack. “I didn’t take many trips and vacations and lived an extremely frugal life.”
The combination of a spartan lifestyle and his rental income allowed him to launch a full-court press on his student loan balance — but the money might have been better spent elsewhere.
“Honestly, I regret paying it off so quickly,” said Hawrylack. “I used almost all of my savings to pay off the remaining loan.”
COVID-19 Crushes Plans That Were Supposed To Follow the Final Payment
College loans were Hawrylack’s only debt, and with a relatively low 5.4% interest rate, it could have been a manageable balance. Paying it early cost him irreplaceable experiences and forced him to return to the starting line of his financial journey.
“The idea was to travel at least twice a year and to start aggressively saving after that,” said Hawrylack. “Unfortunately, the pandemic struck a month after my debt was repaid. At this point, I only had around a couple of paychecks’ worth of money in my checking account. I was so frustrated that I had to start my finances all over again. It was hard on me because it severely impacted my emergency fund.”
Today, Hawrylack regrets not taking a more balanced approach.
“Looking back, I wish I had split it up more evenly,” he said. “I still could have paid above the minimum, but I should have given myself permission to take one trip a year, practiced less frugal living and [had] a decent emergency fund, even if it meant paying it all off in a longer period of time.”
A Physiotherapist Develops Debt-Reduction Tunnel Vision
Arpan Hundal is a registered physiotherapist with Proremedy Physiotherapy. Her education cost her “upwards of $60,000” in student loans with a 6.8% interest rate. After graduation, she was eager to get out from under the burden — looking back, perhaps too eager.
“Early in my career, I focused on paying off my substantial student loans as quickly as possible,” said Hundal. “The freedom of being debt-free was a substantial motivator for me.”
A Fixation on Debt Disrupts Her Financial Balance
By putting more toward her principal than her payment plan required, Hundal succeeded in paying her loans early — but at the cost of a respectable nest egg.
“In retrospect, while the early pay-off brought a sense of accomplishment and relief, it did also limit my early investment capabilities,” said Hundal. “The fervor to be debt-free often blinded me to the potential financial growth I could have achieved had I balanced my loan payments with strategic investments. Over the years, I’ve come to realize the value of diversifying one’s financial strategies and how impactful it can be in building long-term wealth.
“If I could revisit those early days, I would definitely pay more attention to balancing debt payment with wealth-building endeavors. There is something to be said for the words, ‘balance in finances mirrors balance in life.'”
More From GOBankingRates
Keep an Eye Out for Rare Dime Worth as Much as $2,000 -- How To Spot It
The 4 Types of Bank Accounts All Small Businesses Should Have
This article originally appeared on GOBankingRates.com: I Paid Off My Student Loans Early and I Regret It: Here’s What I’d Do Differently
