Is "Sallie Mae the Pimp" Slowing Down Your Savings Plan?
Written by Ben Carter
College student loans have the potential to become a huge "bubble" in American society. In 2014, the collective outstanding federal student loan debt topped $1,096.5 billion. This means a whole lot of people are saddled with huge amounts of student loan debt they may never pay off completely. My own student loan debt levels are pretty depressing. (But with weekly therapy and a solid meditation regimen, I have been able to reduce the night sweats to about once or twice a week).
Student loan debt is one of the main discussions young adults are having about money. Do you pay them off immediately? Do you just pay the minimum and allow the interest to build on top of the principal balance? Will the President of the United States wave a magic loan wand the First Lady grew in the Presidential Garden and make all federal student loan debt disappear?
To be honest, no one approach is the absolute correct way. Jonnelle Marte, money blogger at the Washington Post, raises an interesting point about student loans in her article, "Retirement mistakes people make at every age". The piece centers on various issues people face when planning for retirement. One "mistake" that stood out was a person's preference to pay off student loans aggressively early in their careers, while missing out on the chance to use extra time and extra money to save for retirement. The question is, should you keep the little bit of extra money you earn in your 20s to yourself and your future, or hand it over to "Sallie Mae the Pimp" to lower your principal balance?
I approach my own student loan debt the same way the Tortoise won his race against the Hare. Slow and steady... But this begs the question: Am I right for paying the minimum I'm allowed to pay, opting instead to save my money for me? Or is keeping a high student loan balance keeping me from wealth in the future?
What's your approach to student loan debt? Let the balance build or go broke to pay Sallie Mae off early?