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I graduated with $19,000 in student loan debt, which seems like a drop in the bucket compared to some other students’ balances that inch toward six figures and beyond. But still, a $19,000 bill was enough to fill any recent graduate with dread.
Taking out student loans was a necessity for me to attend college. My family otherwise wouldn’t have been able to afford my attendance at a state school a few hours away from home. At first, my goal was to get rid of that debt as quickly as possible; I would consistently make monthly payments above my required minimum amount in an effort to reach that goal.
In fact, I had become so aggressive about becoming debt-free that a financial planner I spoke to actually told me that I didn’t need to race to pay down the balance so quickly. As she put it, my interest rate was low so it was fine to prioritize other things.
At the time, though, I was extremely uncomfortable with the idea of carrying debt and I couldn’t wait for the day when I would make my final student loan payment and close the account. Her words didn’t carry much weight with me — I still thought I’d feel more financially secure by paying off my debt quickly.
Over time, though, I went from wanting to pay off the rest of my balance within a year to deciding that I was better positioned for other goals. And while the low interest rate was one factor in my choice, I had some other, more powerful, realizations that eventually solidified my decision.
My federal loans carry a low interest rate
Interest rates on federal student loans change every school year and have been on a downward trend over the last decade, though, there have been some years where the interest rates actually increased. If you took out subsidized student loans for the 2009-2010 school year, for example, you might have received a fixed interest rate of 5.60%. However, if you had taken out a subsidized federal student loan for the 2015-2016 school year, your interest rate may have been around 4.29%. The 2020-2021 school year actually saw the lowest fixed rate for subsidized federal student loans: 2.75%.
The interest rate on my federal loans is around 3.7%. And because I had already paid off a great deal of my balance since graduating, my interest charges are fairly manageable. Therefore, I feel comfortable just making monthly payments that …….