Why You Shouldn't Sweat Your Student Debt

Paying it all off may have more consequences than you anticipated.

The first thought that crosses everybody's mind the moment they throw that cap into the early Summer air is: Loans. Gotta pay them off, gotta pay them off!

Or do you?

Student loans are very often associated with anxiety and stress. A study published last year in Social Science & Medicine, was the first to report on the direct link between mental health and student loans. In part, the study concluded that "Student loans were associated with poorer psychological functioning" and that "this association varied by level of parental wealth [...] only, and did not vary by college enrollment history or educational attainment." Ouch.

How deep in debt was the average student they studied? $23,300.

But according to Shannon McLay, of Next-Gen Financial, a financial consulting firm that focuses on working with millennials, all that anxiety could entirely be misguided. Simply making minimum payments on your student loans instead of rushing to pay it off as soon as you can is often a much healthier financial decision, McLay says. "Thousand-dollar events happen all the time," McLay warns, referring to emergencies or other surprise expenses that almost all financial advisors recommend keeping a well-funded savings account for. Paying too much of your student loan can result in not having the money there when it is needed most.

Even Bobby Hoyt, who founded the popular finance blog Millennial Money Man, a website premised on its founder's ability to pay off his $40,000 student loan on a teacher's salary in a year and a half, admits he might have made some mistakes. "I could have really, really screwed myself over," he admitted to Money Watch, "I could have put myself in a bad position if, say, I had gotten hurt."

A great resource to see what your options are is Credible, a website that allows graduated students to compare competing rates to repay or refinance their student loans. It's especially useful if you have higher-interest private college loans, as opposed to ones that are government-subsidized, as it might make sense to refinance them based on what kind of career path you plan on taking.

Despite the amount of stress that college loans cause simply by hanging over you, the interest rates you pay is often actually considerably lower than almost any other loan or financial transaction. Making that credit card payment is definitely a bigger priority, says McLay. In fact, in some cases, the interest rate might be so low that it is could be entirely mitigated by inflation: you could actually be losing money by trying to pay off your college loan!

Per Market Watch, if you invested the percentage of your paycheck that many college grads dedicate to paying off as much of their loans as possible into, say, blue chip stocks, you could be exponentially turning that money into investments that rise in value with the marketplace. Whereas, when you finish paying your college loan, "Your cash is gone," says McLay.

When thinking about that college loan, it might pay to relax a little.

It might pay even more to invest a little.

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