3 Reasons Not To Pay Off Your Student Loans Early, According To Ramit Sethi — and 3 Reasons You Should
Written by
Choncé Maddox
Edited by
Levi Leidy
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For millions of Americans, student loan debt is more than just a financial burden. It’s a source of anxiety, guilt and endless questions about the “right” thing to do. Should you pay off your loans as quickly as possible to be free of the debt once and for all? Or is it better to take a more balanced approach by paying the minimum while you save, invest and build financial stability?
Personal finance expert and bestselling author Ramit Sethi has strong opinions on this topic, and he lays them out in his article. Drawing from his years of financial coaching and education, Sethi explains that there are good reasons both to pay off student loans early, and to take your time, depending on your unique financial situation.
Here’s a closer look at Sethi’s three compelling reasons not to pay off your student loans early, and three reasons why you may want to accelerate the process.
3 Reasons Not To Pay Off Your Student Loans Early
Your Interest Rate Might Be Lower Than You Think
One of the biggest myths around student loan debt is that it’s always urgent to pay it off fast because of sky-high interest rates. But many federal student loans have relatively low interest, especially compared to credit cards or personal loans, which can carry annual percentage rates (APRs) of 15%, 20% or even higher. If your student loans are in the 4% to 6% range, you may not be losing as much to interest as you think.
Ramit Sethi argues that in this case, you might be better off using your extra money for other goals like investing in a 401(k) or IRA, saving for a home down payment or building an emergency fund. Why? Because the potential long-term returns from investing or increasing your financial security could outweigh the modest interest savings you’d gain by paying off student loans early.
You Could Be Ignoring More Urgent Financial Priorities
It’s tempting to laser-focus on student loan debt, but doing so may cause you to neglect the financial foundation that protects your long-term well-being. Sethi makes it clear: Before you double up on student loan payments, ask yourself if you have at least three to six months of expenses saved in an emergency fund. Have you paid off your high-interest credit card debt?
If the answer to any of these is no, paying off your loans early may actually put you in a more vulnerable position. Imagine losing your job or facing a sudden medical bill with no cash reserves just because you sent all your extra money to your student loan servicer. In that case, you’d likely end up borrowing money at much higher interest rates, digging yourself into a deeper hole.
Sethi’s approach encourages balance and long-term thinking. Paying down debt is important, but not at the expense of essential financial safeguards.
You Might Miss Out on Better Uses for Your Money
While being debt-free can bring peace of mind, Sethi suggests that there’s an opportunity cost to consider. Every extra dollar that goes toward prepaying your student loans is a dollar that isn’t being used to build wealth. If you have access to low-interest federal loans, it may make more sense to use your money to invest, start a side business, build a cash cushion or even explore real estate or career development.
There’s also the psychological benefit of seeing your money grow and knowing that you’re actively building assets. For many people, that momentum feels more empowering than slowly chipping away at a loan that has a manageable interest rate.
3 Reasons You Should Pay Off Your Student Loans Early
Interest Adds Up, Even If the Rate Feels Low
Although student loans may come with lower interest rates than other types of debt, they still cost you money every day that the balance remains unpaid. Over time, even a 5% or 6% interest rate can lead to thousands of dollars in extra payments. In his article, Sethi offers an example: A $30,000 student loan at 6% interest, if paid off over 10 years, would cost almost $40,000 in total. That’s nearly $10,000 in interest alone.
The sooner you pay down the principal, the less you’ll pay overall. If you can afford to make extra payments, even small ones, you can cut down the loan’s life and the total amount you owe. This is especially important if you’re dealing with private loans that tend to carry higher interest rates and fewer borrower protections than federal loans.
If you’re in a financially stable place, reducing the cost of borrowing is a smart and proactive move.
Debt Freedom Can Boost Your Mental and Financial Health
Beyond the numbers, Sethi highlights the emotional relief that comes from eliminating student debt. Many people carry the weight of their loans for years, sometimes decades. Paying them off early can be incredibly freeing. It clears up mental space, reduces stress and opens up new possibilities for your future.
When you’re no longer tied to a monthly payment, you gain flexibility. Maybe you’ll have more room in your budget to travel, save for a home, invest more aggressively or pursue a career you love but that pays less. Your debt-to-income ratio improves, which can also make it easier to qualify for a mortgage or other loans.
Eliminating your student loans can act as a psychological turning point. For many borrowers, the peace of mind is worth it, even if it means holding off on other goals temporarily.
It Could Improve Your Credit and Financial Profile
Paying off your student loans early may also give your credit score a healthy bump, especially if you’ve been making consistent, on-time payments. Reducing your overall debt load can lower your credit utilization ratio, which is one of the key factors in credit scoring models.
In addition, student loan repayment history is typically a major component of your credit report. Paying off the loan shows you can responsibly handle long-term debt, which can make you more attractive to lenders and creditors in the future.
While the impact might vary depending on your specific credit profile, eliminating a major debt obligation can leave your credit report looking a lot cleaner.
Takeaway
Whether you should pay off your student loans early depends on more than just your interest rate. Your cash flow, goals, financial stability and even your stress levels all play a role. Ramit Sethi’s advice urges borrowers to be intentional, not impulsive, with their student loan repayment strategy.
If your finances are shaky, if you’re still building an emergency fund or if your loans are at a low interest rate, it might make sense to hold off on early repayment and focus on other areas of your financial life. But if you’re in a more stable position, have your savings and retirement underway and want to free yourself from the emotional weight of debt, paying off your loans sooner rather than later could be the best decision you make.
At the end of the day, the best approach is one that balances your present needs with your long-term goals, and gives you both financial progress and peace of mind.
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