I have seen this on a lot of blogs lately and a lot of carnivals. Bloggers going around telling readers to not pay off their student loans. While this is not the dumbest thing I have ever seen from a personal finance blog, it ranks pretty high. I am also the type of person who hates to have debt, so why would you want that debt sitting around there while you deliberately ignore it?
I have seen bloggers say don’t pay it off because if you die, the debt goes away. While I do not believe this to be true if you are married or have children, this is just plain bad thinking. First off, if you don’t think you will live to be 55 (out of school by 25, 30 years to pay off debt), then you shouldn’t really care about money to begin with. If you really want to be retired and still have that student loan hanging around, then that is your prerogative. I am sure that whatever company issued you the loan is not going to sit back after you retire or die and forgot about their money.
Another big thing is that people say Student Loan interest is tax-deductible. That is correct, up to $500. My wife and I had over $800 in student loan interest last year, and we didn’t make too many payments on her private loans (the ones with the huge interest rate). If we just sit back and make scheduled payments and not pay extra principal, we will get hammered on the extra interest rate payments we make. Any money that would be made with alternative investments is gone due to the extra interest payments we make.
Finally, this is another case of people looking short-term and not long-term. Yes you can save that money that would be used to pay extra principal and do whatever with it. But what about your credit and credit score. Creditors will see those loans lingering out there and wonder why you don’t have it payed off, but you want to buy this nice new house. It will also reflect on your credit score as you will have those monthly payments out there, and you won’t be able to borrow as much, or the interest rate on the loan you get will be higher.
Bottom line: There is nothing good about loans and debt. I think readers should be weary when reading articles that say don’t pay back loans or debt. I think they should also take a look at the kind of people writing them. I know I steer clear of those sites because if they tell me that dying is a good way to get rid of a loan, then I don’t want any finance advice from them.