“Should I pay off my student loans?”


Little known fact: When you pay off student loans, your credit score drops. A lot.

I know. I finally paid mine off after 27 years. I’ve never taken a forbearance or deferred them. I overpaid when I could.

This was a major victory. I’d been looking forward to it for years, sending every penny I found on the ground to the loan.

When I got my “teacher loan forgiveness” rejected on a technicality (I was the only one at my school who did–and I later found an exposé by the New York Times saying rejecting people was a thing… because most went away) I still paid it.

“I took the loans, I will pay the loans,” I said.  And, I did–a few years early at that.

But, there was no confetti, just a 12-point drop in my credit score with a big red “Account closed” on my credit report–a blemish.

There was a paragraph-long admonishment telling that lenders like to see accounts open and in good standing, and that this one had been closed. Not “satisfied” or “paid in full” but “CLOSED!”

I didn’t want a red line on my credit report and a lecture. I wanted a big green “Congratulations! You successfully satisfied this obligation. Great job maintaining outstanding credit.”

But that’s not how it works.  The system is broken.

It’ll take me months to get my credit score back up to where it was before I dared to pay off my loan.

Recently I tried to pay off a phone contract early, too. Before I clicked “pay” in the “pay bill” section, I noticed the amount was a couple hundreds of dollars instead of the $48 I expected (2 months of $24/month).

I stopped. I read the fine-fine print.

That’s the print hidden in the links below the fine print no one ever reads.

Turns out, if I paid it early, I’d negate the “deal.” I’d pay back every single penny of what would have been the full retail price.

Often, there’s a penalty for being financially responsible.

The system is broken.

What to do about it?

1. Read the fine print.

2. Know how the system works. Use it to your advantage when you can.

3. Leverage other people’s money.

Things you can do to get ahead:

1. Pay down your credit cards, but don’t shut down the accounts. Leave them open. Use them for revolving charges you’ll pay off each month—gas, groceries, heck, even your mortgage if you’ll get points.

2. Negotiate things. Cable bill too high? Negotiate. Better phone plans somewhere else? Negotiate. Car insurance too high? You guest it… negotiate. Many companies will “find” a “new offer” to keep you.

3. Cash is king. I learned this over my two years of marketplace health insurance with deductibles so high I might as well have been uninsured. Call around for pricing on upcoming lab tests, and ask your doctor what the cash price is. Pay that. It’s often lower. Labs, hospitals, and doctors have different rate schedules for insurance submissions and cash.

4. Getting work done on your home? Again, ask the cash price. It’s often lower.

5. Only take “special offers” that benefit you. The” 25% off clothing purchase when you get our card” does not. It’s a hard-pull on your credit card (lowers your score) and will be a million percent interest.

6. If a “special offer” benefits you (lower phone cost but must be paid over 24 months, as I found) use those for what they’re worth. But, know the penalties ahead of time.

7. Consolidate credit cards and move them to a low-interest introductory offer when it benefits you. There’s generally a 3% fee to move the money. If that’s less than your interest and you’re working to pay down debt, this is a great chance. Don’t close the old credit cards—that’ll lower your credit score. This is a great “reset” button IF you can resist creating more debt.

8. Automate your payments and savings. Using your online banking and credit cards, automate all your payments—including your savings. You can set your direct deposit to send a certain amount to your savings and investment accounts.

9. Monitor your credit reports, including your credit-to-debt ratio. If you’re paying down a balance on your credit card bills, keep “used credit” below the 30% of your available credit limit to optimize your credit score.

10. When something stupid affects your score, don’t panic. It’ll rebound in a few months to a year, depending.

To be continued…

I’ll be tracking my credit score to see how long it takes to get those 12 points back. I’ll report back to you. I’ll edit this post.

But, one of the solutions: Not taking on 27 years of student loans in the first place. Mr. Brown (high school history) told me not to. I didn’t listen. And that was when college was “affordable” compared to today’s standards.

With college acceptances and “Ivy Day” around the corner, I have some strong words to say about this to every teen I meet.  Especially today, when I have the internet connecting me to a world of learning every day.

But meanwhile, I’m going to get back to work getting my credit score higher than it was before I did the right thing. I’m still proud to be paying things down and off and growing the bottom line.

Even if some credit company (I never gave permission to access my financials in the first place) doesn’t agree.