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The News God > Blog > Business & Finance > Disadvantages of Repaying Student Loan at Earliest
Business & Finance

Disadvantages of Repaying Student Loan at Earliest

Rose Tillerson Bankson
Last updated: December 15, 2022 12:57 pm
Rose Tillerson Bankson - Editor
December 15, 2022
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Repaying student loans at the earliest is a great idea if you can manage to do it. However, there are several disadvantages of doing so as well. First, you must have an entire plan in place to make sure that things run smoothly when you start repaying your loan. If you don’t consider these things and just go for the quick fix, then it can create problems for you in the long run. Like there are disadvantages of paying off a car loan early there are also disadvantages of Repaying a Student Loan early. 

Contents
No time for a grace periodExtra burden of interest rateNo time for family expansionNo leeway for stock market crash and recession

No time for a grace period

The period of time between the end of your studies and the start of your repayment period is known as a grace period. This can be up to six months, depending on the type of loan you have: federal or private. However, not all loans will have this option.

Private loans do not have grace periods because Uncle Sam does not subsidize them like federal student loans are, so if you have one, it’s best to make sure that once you start repaying, it doesn’t go past 120 days – otherwise, you may incur late fees!

Extra burden of interest rate

The major disadvantage of repaying student loans at the earliest is that you will be dealing with a higher interest rate than other types of loans such as auto loans and home improvement loans. And this interest rate is much higher than inflation.

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According to the Federal Reserve Bank of St. Louis, the average inflation rate from 2000-2019 was 1.7%. Meanwhile, the average fixed interest rate on a 30-year mortgage loan has been around 4%. Compared to these rates, student loans seem like way too much a burden for young graduates who are trying their best to get settled in life and start paying back their college debt as soon as possible.

No time for family expansion

One of the common reasons people cite for wanting to pay off their student loans early is a desire to start a family. However, this isn’t always a good reason. If you need more money because you’re having children or adopting them, then there may be better courses of action than paying off your loan. In fact, it could cost more than just making payments on time.

No leeway for stock market crash and recession

If you’re in a position where you can’t pay your loans and you’ve exhausted all other options, there’s still one thing you can do: declare bankruptcy. In some cases, if you’ve gone through bankruptcy before and it hasn’t helped—for example, if your income is too high—the court won’t allow it. But otherwise, declaring bankruptcy may be an option for you.

The general consensus is that if you can make your student loan payments on time, then you should. It will save you money in the long run and help to build a good credit standing. According to Lantern by SoFi advisors, “Paying your loan off early can free up the cash which you can use for other financial goals.”

However, there are some disadvantages to making your payments at the earliest possible date as well. If possible, consider whether these disadvantages might outweigh their benefits for your particular situation before making any decision about when to make payments on your student loans.

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