The Debt I Should Have Kept

Having been raised by parents who worked hard to get, and stay, out of debt, I made it my mission after college to pay off my student loans as quickly as possible. Every month, I paid well above the minimum amount and directed the excess to be applied toward reducing the principal owed. A year and a half after graduation, I was debt-free.

But was there a better way to go? Looking back, I should have been less focused on paying off the loans quickly and more focused on maximizing my cash flow and the other opportunities that student debt offered.

Tax Deduction

A loan payer who files a joint or individual tax return and who is not claimed as a dependent on someone else’s return may be eligible for a student loan interest deduction of up to $2,500 per tax year. The deduction is “above the line,” which means that you’ll pay less in taxes on your income. Extending the life of your loan by making minimum payments means more tax savings each year.

Retirement Savings

At 23, I was more focused on paying off my debt quickly than I was on saving as much as possible for retirement. Every dollar above the minimum payment paid on my loan could have been contributed to a retirement account. As a result of saving less at an early age, I now need to save more each year to meet my goals.

Credit Building

Student loans are a great way to build credit, as long as you’re making the minimum payment on time, since they are regarded as “good debt” by lenders and credit bureaus (think Experian and TransUnion). In addition to making on-time payments, another way to improve your credit score is to have a long history of credit. The advantage of not immediately paying off student loans is that you’ll have more years of on-time payments reflected in your credit report.

Not everyone has a choice when it comes to taking on student loan debt, but you do have a choice as to how quickly you’ll pay off those loans. Be careful not to let the fear of debt overshadow its positive aspects. It’s OK to have manageable student debt, as long as you make sure to leverage the benefits.


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