The wisdom of paying student loans off quickly

I write in this blog that saving money and paying for college is wise. I talk about the downsides and risks of using student loans to pay for college for yourself or for your child. I talk about the financial dependency and mental drag created by signing up to student debt for 20 or 30 years.

If you already have student loans, or plan to use them, I try to persuade you to pay them off very quickly. I believe that’s the wise path to financial freedom in life. It’s not for everyone, or for every situation, but paying the debt off quickly after graduating is much better than staying in debt for 20 or 30 years.

I’m a Financial Guy

My perspective on money and debt comes partly from how I make a living: providing accounting and financial consulting services. I’ve seen what happens when the financial side of a person’s business (or their personal life) has been neglected. I’ve seen how debt can destroy a company and put everyone involved in the company into deep and lasting financial trouble.

But I’m just like everyone else out there. I have borrowed money to buy cars.  I’ve borrowed money to buy houses.  I’ve borrowed money to go on vacation.  I’ve used credit cards when I didn’t have the money to pay for something.  I’ve done all of that in my life.

But I always had that uncomfortable, nagging feeling deep inside that I wasn’t being smart or wise while doing it. I even took out my own version of a student loan.

Philip Borrows Money to Finish School

The student loan crisis that is brewing today was in its infancy when I went to college. I graduated in 1983 from a small school – Lamar University – in my hometown of Beaumont Texas. I don’t think I had even heard of a student loan back then.

Annual tuition was a fraction of what it is today (although it felt like a lot at the time). My Dad paid for my tuition and books.

In my last year of school I borrowed about $15,000 from my Mom so I could pour on the gas for my final year of college. I wanted to take 21 hours so I could finish school and get out and start working as an accountant. I wanted the loan in order to take the maximum class load possible and not have to work during that time. I was married and my daughter had just arrived into the world. We were broke and I was excited about getting into my new career so I could crank my income up.

My Mom supported my goal of getting through college but she was not really a fan of loaning money to family (she was definitely right about that). I poured on the gas, went to school full-time and got my BBA in Accounting. I went to work for a local CPA firm and my career was off and running.

Now came the time for me to start paying my “student loan” back. How well did I do paying it off you ask? Crappy. I did a horrible job.

Sometimes I made a regular monthly payment… sometimes I didn’t. I justified it at the time based on my financial situation as a young father and husband. I remember always feeling bad about it though. In hindsight, I wish I would have been stronger in that regard and accepted my responsibility to pay it back in a more honorable way.

I eventually paid it off in a lump sum in 1998. I basically let that loan sit around in a somewhat neglected state for 15 years.  If it would have been a student loan of today, there would have been loads of interest tacked onto the principal balance. Who knows how much that balance would have grown to over the years. I would have been caught in the same trap that so many people are caught in today. I basically got off easy because my Mom cut me some slack (thank you Mom). :-)

Your Plan

If you are a parent, I encourage you to begin planning for how you will pay for college if that is a part of their future.

I also think it would be wise to start teaching them the wisdom and value of paying any student loans off quickly upon graduation. (I have definitely learned that lesson.)

I hope you will give that some serious consideration as college time approaches.