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Pay off student loans early if you can — in most cases

Federal subsidized and unsubsidized student loans have different

Federal subsidized and unsubsidized student loans have different interest accruals and unsubsidized loans accrue interest while the student is in school. Credit: Getty Images / iStockphoto / Darren415

Sometimes you just want to get the monkey off your back, especially if you’re talking student loans. But should you pay them off early?

The first question to ask yourself, says Andrew Josuweit, CEO of Student Loan Hero: “What are you willing to give up? Paying off your student loans early usually takes sacrifice.” But generally, “treat student loan debt like your house is on fire,” he says.

There are plenty of good reasons to do so. Rocco Carriero, an Ameriprise Financial private wealth adviser in Southampton, spells them out. “You’ll improve your credit score, pay less interest over time, free up cash flow for investing and give yourself a cushion, which will help you avoid additional debt.”

But there are exceptions. For example, there’s no need to pay off your student loans early if you’re planning to take advantage of federal student loan forgiveness programs, says Robert Farrington, founder of TheCollegeInvestor.com.

And when it comes to federal student loans, the choice depends on what other types of debt the student has, says Corey York, director of student financial services at SUNY Purchase. “Student loan interest rates are at 4.45 percent. If the student has credit card debt and is paying a rate higher than 4.45 percent, then you would pay off the credit cards first and not student loans.”

Be aware that federal subsidized and unsubsidized loans have different interest accruals. “Unsubsidized loans accrue interest while the student is in school that is added to the principal at graduation,” York says. “So, it makes sense to pay off this loan first. Subsidized loan interest is covered by the government while the student is in school. There is no penalty for paying off a student loan early.”

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