July 2, 2019

By Christy Bieber

For The Motley Fool

Owing money on student loans can feel like a major financial burden. After all, you have to send money to lenders each month and tons of debt shows up on your credit report.

While you may be tempted to get rid of your student debt ASAP by making extra payments and throwing as much cash at it as you can, this may not actually be the best financial decision. In fact, there are a few key reasons why paying off your student loans early might be a bad idea indeed. Here are four of them.

Image source: Getty Images.
1. Federal student debt comes with borrower protections you can’t get with other debt.

With most types of debt, lenders don’t really care if you’re facing financial hardship — you have to pay back what you owe on schedule. And you can’t just change your payment plan to reduce your payment so it matches your income, nor can you expect to get some of your debt forgiven if you do work that serves the public.

If you have federal student loan debt, on the other hand, there are unmatched borrower protections available to you. Depending on your situation, these borrower protections include:

Eligibility to get loans forgiven if you work in public service and make 120 on-time payments
The option to put loans into forbearance or deferment, and pause payments if you go back to school, are unemployed, serve in the military, join the Peace Corps, or meet other qualifying requirements
The ability to change repayment plans and pick a plan that caps payments at a percentage of income

The government may even subsidize interest on some of your loans during periods when payments are deferred.

Putting extra money toward paying down loans with all these borrower protections rarely makes sense. After all, if you could pay a small percentage of your income for 10 years and get the rest of your loans forgiven because you work for the government or a nonprofit, why pay off your loans early?

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