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I was on track to pay off my student loans early but decided not to — here's what changed my mind

The low interest rate played a role but I made some other realizations that solidified my decision.

RJ Sangosti/MediaNews Group/The Denver Post via Getty Images | Denver Post | Getty Images

The Mint app has shut down as of Jan. 1, 2024. For alternatives, check out CNBC Select's ranking of the best budgeting apps.

I graduated with $19,000 in student loan debt, which seems like a drop in the bucket compared to some other students' balances that inch toward six figures and beyond. But still, a $19,000 bill was enough to fill any recent graduate with dread.

Taking out student loans was a necessity for me to attend college. My family otherwise wouldn't have been able to afford my attendance at a state school a few hours away from home. At first, my goal was to get rid of that debt as quickly as possible; I would consistently make monthly payments above my required minimum amount in an effort to reach that goal.

In fact, I had become so aggressive about becoming debt-free that a financial planner I spoke to actually told me that I didn't need to race to pay down the balance so quickly. As she put it, my interest rate was low so it was fine to prioritize other things.

At the time, though, I was extremely uncomfortable with the idea of carrying debt and I couldn't wait for the day when I would make my final student loan payment and close the account. Her words didn't carry much weight with me — I still thought I'd feel more financially secure by paying off my debt quickly.

Over time, though, I went from wanting to pay off the rest of my balance within a year to deciding that I was better positioned for other goals. And while the low interest rate was one factor in my choice, I had some other, more powerful, realizations that eventually solidified my decision.

My federal loans carry a low interest rate

Interest rates on federal student loans change every school year and have been on a downward trend over the last decade, though, there have been some years where the interest rates actually increased. If you took out subsidized student loans for the 2009-2010 school year, for example, you might have received a fixed interest rate of 5.60%. However, if you had taken out a subsidized federal student loan for the 2015-2016 school year, your interest rate may have been around 4.29%. The 2020-2021 school year actually saw the lowest fixed rate for subsidized federal student loans: 2.75%.

The interest rate on my federal loans is around 3.7%. And because I had already paid off a great deal of my balance since graduating, my interest charges are fairly manageable. Therefore, I feel comfortable just making monthly payments that are slightly above the required minimum amount as opposed to throwing a lot more money at the debt.

I don't have other forms of debt

I used to carry credit card debt and had a few instances where I came very close to maxing out my credit card, but I have since reigned in my spending and paid off my balance. Now, if I do make purchases with my credit card, I make sure I pay it off in full every month. Not carrying a credit card balance makes it easier to manage other aspects of my financial life, including my student loans.

My student loan debt is really the only major debt I carry. I don't have a mortgage, a car loan or a personal loan. Having fewer debts to account for allows me to take my time in paying off this low-interest loan so I could redirect the rest of my income elsewhere — like into investments that could help me build wealth.

I became more comfortable with carrying debt

Money management is highly emotional, and often times our financial habits in adulthood have been influenced by what we learned and saw from our environment growing up.

Growing up, I knew that debt was a real pain point for my family. And as a college graduate, I wanted to get out of debt as quickly as possible. For many, having a monthly payment for a balance they owe feels like an emotional and financial anchor they have to keep dragging along. Often, high amounts of debt can actually hinder an individual's ability to put money toward other goals or expenses.

But not really having any other forms of debt contributed to me slowly transitioning into feeling more emotionally comfortable with paying off my student loans over a longer period of time. If I had other loans to pay off, I likely would have felt more weighed down by the multitude of payments I was making each month. I would feel more inclined to get rid of one as quickly as possible.

I could get a better return on my money by investing it

I used to make monthly payments that were much higher than my minimum in an effort to get out of debt quicker. But I realized that by throwing extra money at my student loan debt instead of at investment opportunities, I was becoming debt-free faster but I wasn't building my assets faster. And seeing as I want to be the first millionaire in my family, it was important for me to start investing more.

I actually had an experience where I made a fairly large student loan payment (way above my required minimum amount) and realized much too late that had I instead invested that extra money into a stock I had been researching and considering buying, I would have more than tripled the money more than a year later (note that tripling your money in under a year is not common).

I follow a long-term investing strategy, however, I know that every year makes a difference when trying to build your wealth. And seeing as I had never previously known about how to save for retirement and build wealth or why any of that was important, I felt like I needed to start catching up ASAP. I got off to a strong start with my brokerage account and Roth IRA through Fidelity (and I've been tracking my progress with the Mint app) but I still have a long way to go. So I decided that I didn't mind slowly paying off my student loan debt if it meant I could grow my investments much faster.

Opening up an account with a robo-advisor like Wealthfront and Betterment, or investment app like Robinhood, can be an easy way to start investing any extra cash for the future.

Bottom line

I plan to invest my money while I pay off my student loan debt, however, I won't make loan payments as aggressively as I previously had been.

The fact that my loans carry a low interest rate and that I don't have other forms of debt put me in a position to feel emotionally and financially comfortable carrying my debt longer. Now, I'll redirect extra money I would have used to make larger payments toward my investment goals.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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