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I have enough cash to pay off my student loan—why I’m not doing it
Everyone who knows me knows that I can’t stand owing money. I pay down my credit cards every month, and I complete Venmo requests the second I get them.
The only debt I have left is my student loan, which has been on minimum payment autopilot since I graduated from college in 2013. For many years, I left those payments on the back burner, funneling any extra savings I had toward my investments.
Recently, though, my financial strategy changed after my fiancé and I began planning for a wedding in summer 2027. I sold a fair amount of stock and dialed back my retirement contributions in order to build our wedding fund.
For the first time in my life, I’m sitting on a pile of cash. And I have to say, I’m very tempted to use a chunk of it to wipe out my loan.
Hear me out. My student debt carries an interest rate of 6.55% and is scheduled to be paid off in late 2027. If I paid my loan off now, I could take my monthly loan payment, plus a few extra dollars, tack it on to my regular contributions to the wedding fund, and still hit our funding goal on time. Plus, I’d be debt-free.
I chatted with a few certified financial planners, and pretty much everyone agreed that the math works in my favor.
“If you have the funds available, paying off the loans first is a smart move,” says MaryAnne Gucciardi, a CFP with Wealthmind Financial Planning. “That’s a guaranteed 6.55% ‘return,’ which is higher than what you’re likely earning in even the best high-yield savings account.”
So as you’re reading this, I’ve already paid the loan off, right? Well, no. I actually decided against it. Here’s why.
My decision to hold off on repaying my loan, for now
The mathematical principle Gucciardi points out is an important one that applies to a broad array of situations in personal finance. Paying down a loan with a particular interest rate is equivalent to earning an annualized return on an investment.
It’s a quick and dirty way to decide how to prioritize your financial goals. If you have credit card debt at 20% — currently right around the average, according to Bankrate — paying it down is like earning 20% a year in the stock market. Because that’s a figure your portfolio is unlikely to earn on a long-term basis, the thinking goes, you’re better off prioritizing the debt.
The same logic applies to my loan. The 3.4% annual percentage yield we’re earning in our savings account falls short of the 6.55% I owe on my loans.
The cost of making such a move, Gucciardi and others pointed out to me, is liquidity. Once I make the lump sum payment, I won’t be able to go to my student loan servicer and ask for my money back. Catching up by the time of our wedding date is as easy as redirecting the freed-up cash from my student loan payment to put toward the wedding fund. But a lot could go wrong between now and then.
What if I lose my job? Or one of us needs expensive medical treatment? Or elements of our wedding end up costing much more than we budgeted for? I have emergency savings, but a few things going wrong could make what looked really easy on paper into something really hard in real life.
So I did some more math. I’ve paid off 81% of my student debt, meaning that the vast majority of my payment these days goes toward paying down the principal rather than the interest. By my calculations, paying the loan now, instead of continuing with minimum payments, would save me somewhere between $400 and $500 in interest.
“That net difference is the price of financial flexibility,” says Sean Pearson, a CFP with Ameriprise Financial Services. “It’s the price of doing the things that you want to do that are the most important to you when you need to get them done.”
To be clear, my financial priorities might not be the same as yours, and it’s worth discussing your own goals with a financial advisor. Right now, the wedding is the most important thing I’m saving money for. I want it be everything my fiancé and I envision, and I want our (frankly, too many) guests to have an amazing time. Having the extra cash on hand in case anything comes up is worth paying my student loan servicer an extra $400.
It’s a lesson I’m applying to my broader financial life too. While certain financial strategies are mathematically optimal, they may not fit within my particular set of goals.
“While imperfect, the best solution is often to make a budget that allows you to reach your priorities when they exist on your timeline and remember that the calendar is as important to your financial plan as your calculator,” Pearson says.
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