Eliminating any debt is cause for celebration, but what happens next? What should you do after paying off student loans, for example?
Through hard work, Rachel and Matt Gerner had that very question to ponder. The couple told Student Loan Hero that they spent two years working side hustles and sticking to a frugal budget to pay off the more than $30,000 of student loan debt they had when they married.
“We doubled down on the debt because we knew if we worked intensely hard for a season, we could have the satisfaction of being debt-free,” said Rachel.
Here’s more information on being student loan debt-free—and what you can do next!
You can work toward other financial goals after paying off your student loans.
When you don’t have to make monthly payments to student loans, you can devote that money to other goals instead. Student Loan Hero recommends paying off any other high-interest debt first, and then perhaps setting up an emergency fund to cover three to six months of living expenses. You can also contribute more to retirement since you want your retirement money to have ample time to grow. You can think about homeownership if that makes sense for your financial future.
The Gerners celebrated paying off their student loans by taking a trip to Belize, and then they focused on other goals. They didn’t have other high-interest debt, and they decided that renting a place and investing their money was more lucrative than buying a house. So, they “shifted the extra money into our ‘dream fund’ for personal goals, investing it in laddered CDs, stocks, and bonds.”
Paying off your student loans might impact your credit score—but the change is usually temporary.
As Experian explains, paying off your student loan doesn’t make as much of a difference on your credit report as your payment history while the loan was still active. If you made on-time payments, that history will boost your credit score. If you paid late or defaulted on your loans, that history will ding your score. The student loan itself will contribute to your credit “mix,” which is another factor in credit score calculation.
After your final payment on your student loan, you might see a slight decrease in your credit score, especially if you have high balances on other loans or credit cards or if your student loan was the only installment loan on your report, Experian says. Or you might see a slight increase or no change whatsoever. Regardless, these changes are usually temporary, the credit bureau reports.
Student loan cancellation may still be on the horizon.
Experts say that Democrats might ramp up their efforts to cancel student loan debt before midterms in November 2022 to improve their election odds. Mark Kantrowitz told CNBC that it’s likelier now than ever that borrowers will have their debt reduced or canceled completely. However, borrowers “should not take any precipitous action in anticipation of loan forgiveness,” Kantrowitz adds. “Until legislation is signed into law, you can’t count on anything.”