While finishing college is a huge relief for people, there are other types of anxiety that start to set in once school is over with. Many graduates find themselves stressed out with the idea of finding a good job, which direction they should take their career in the future and most pressing for some is trying to come up with a way to pay off their huge student loans as quickly as possible. If you check out any type of social media site where former students sound off about their current issues, you’ll find hundreds of them posting about how worried they are that they won’t be able to pay off their student loan debt quickly.

The Temptation to pay off Student Loans Immediately

While no one likes the idea of paying off huge amounts of debt, graduates are usually very eager to whittle down their student loan debts almost as soon as they enter the full time work force. However, the temptation (some might call it an obsession) to do so may not necessarily be in your best interest. However, the average undergraduate gets out of school with about $29,000 to pay back, so it is easy to understand why these folks are in such a rush to pay that debt off, so they can get on to enjoying life and saving money for other things.

Putting serious effort into eliminating student loan debt quickly, however, could prove to be a mistake. This is especially true if the act of paying off your educational debt prevents you from putting money away into a longer-term retirement account. A recent survey was conducted and it found that about half of Americans who have student loan debts say that they had to delay contributing to their retirement accounts. That represents a 22 percent increase from 2013. That year, about 41 percent said that they were delaying putting money into their retirement plans. There seems to be a perception that getting rid of every penny of educational debt means that financial freedom is at hand. However, if graduates fail to pay into their savings, they are making a potentially troubling decision.

For example, if a 25 year old graduate where emphasize paying back a $20,000 student loan, how well would he or she do with also trying to put money away in retirement savings? Let’s say that this person was going to try to pay off their educational debt in seven years instead of ten. With an interest rate of about seven percent, and a $50,000 yearly salary (plus all those pesky living expenses) rushing to pay off this debt would mean that the person in this scenario would only be able to qualify for about half of a company’s 5 percent 401k match. That means that this person would wind up leaving a heck of a lot of money on the table to meet the goal of paying off a large student loan as quickly as possible. This would add up to roughly $125,000 less in the old retirement fund than if this person would have instead taken the full ten years to pay the loan and contributed enough to get the full match from their employer.

Paying off debt is a great thing to do. However, if you are young, and have the opportunity to instead save tax-free money in a 401k or other type of retirement plan, you may be shortchanging yourself later on in life – when you really need the money. Sometimes it is better to simply chip away at those student loan payments if the payoff is potentially hundreds of thousands of dollars more that gets dumped into your retirement fund.

Should you be in a Hurry to pay off Student Loan Debts?

While finishing college is a huge relief for people, there are other types of anxiety that start to set in once school is over with. Many graduates find themselves stressed out with the idea of finding a good job, which direction they should take their career in the future and most pressing for some is trying to come up with a way to pay off their huge student loans as quickly as possible. If you check out any type of social media site where former students sound off about their current issues, you’ll find hundreds of them posting about how worried they are that they won’t be able to pay off their student loan debt quickly.

The Temptation to pay off Student Loans Immediately

While no one likes the idea of paying off huge amounts of debt, graduates are usually very eager to whittle down their student loan debts almost as soon as they enter the full time work force. However, the temptation (some might call it an obsession) to do so may not necessarily be in your best interest. However, the average undergraduate gets out of school with about $29,000 to pay back, so it is easy to understand why these folks are in such a rush to pay that debt off, so they can get on to enjoying life and saving money for other things.

Putting serious effort into eliminating student loan debt quickly, however, could prove to be a mistake. This is especially true if the act of paying off your educational debt prevents you from putting money away into a longer-term retirement account. A recent survey was conducted and it found that about half of Americans who have student loan debts say that they had to delay contributing to their retirement accounts. That represents a 22 percent increase from 2013. That year, about 41 percent said that they were delaying putting money into their retirement plans. There seems to be a perception that getting rid of every penny of educational debt means that financial freedom is at hand. However, if graduates fail to pay into their savings, they are making a potentially troubling decision.

For example, if a 25 year old graduate where emphasize paying back a $20,000 student loan, how well would he or she do with also trying to put money away in retirement savings? Let’s say that this person was going to try to pay off their educational debt in seven years instead of ten. With an interest rate of about seven percent, and a $50,000 yearly salary (plus all those pesky living expenses) rushing to pay off this debt would mean that the person in this scenario would only be able to qualify for about half of a company’s 5 percent 401k match. That means that this person would wind up leaving a heck of a lot of money on the table to meet the goal of paying off a large student loan as quickly as possible. This would add up to roughly $125,000 less in the old retirement fund than if this person would have instead taken the full ten years to pay the loan and contributed enough to get the full match from their employer.

Paying off debt is a great thing to do. However, if you are young, and have the opportunity to instead save tax-free money in a 401k or other type of retirement plan, you may be shortchanging yourself later on in life – when you really need the money. Sometimes it is better to simply chip away at those student loan payments if the payoff is potentially hundreds of thousands of dollars more that gets dumped into your retirement fund.