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I have taken out five student loans, three quite small and two rather large. I have a ton of money left over from my last student loan, I overestimated how much I would need (I wound up getting scholarships) and I would like to pay down my student loan debt with what is left over.

All of my loans are Federal Stafford and are at a fixed 6.8%. With the money I have left over, I could pay off the smallest three immediately and then put the rest towards the larger loans. None of the loans have gone into repayment yet.

Question #1: Would paying off these three loans immediately be a bad idea? Does having 5 loans that I am paying off look better on my credit score than only having 2? Should I try to pay them all off over the same period of time, or get the small ones out of the way faster with larger payments?

It would be nice to only worry about 2 lenders instead of 5, however I do not know if having 5 open loans looks better on a credit report.

Question #2: Is it better to pay off your student loans over 10 years or 5 years? I would like to pay them off as soon as possible, maybe 3-5 years, since I would be paying about $ 500 in interest for every year I have my loans open. Although I would be paying extra, does having loans open longer look better to a credit bureau?

Thanks, I’m not very good with all of this. I have quite a few credit cards whose balances I pay every month, my credit score is very high. I like to stay out of debt, but I do want to maintain that score.
I’m getting my master’s this May, so I’m just about out of school. Thanks Julie!

3 Thoughts on Will paying off my student loans early affect my credit?
  1. Reply
    Julia H
    September 10, 2011 at 10:15 pm

    Too many open accounts can be as bad as too few. I don’t think paying them off would impact your score at all, particularly since you pay off your revolving credit monthly.

    I assume you’ll be out of school in 5 years? If so, pay them off in the shorter period of time. You won’t regret it.

  2. Reply
    Jeff H
    September 10, 2011 at 10:58 pm

    Definitely payoff the three smaller ones. Paying debts early never hurts credit ratings. Paying late does as does having multiple lenders. Keep a modest reserve in case of surprises and problems, but not so much you will spend it because it is there (BAD IDEA).

    People worry too much about credit score when they are so much better off being debt free.

    Pay those loans off as quickly as you can. Set aside the saved money for a rainy day fund. Your credit cards paid in full each month will maintain that credit score.

    Think about it. Assume you are a banker for a moment. Would you make a loan to somebody who has little or no debt compared to someone whose debt exceeds several months of his monthly income?
    Credit bureaus do NOT look at your credit history. They just report it.

    The old idea of investing the funds until you absolutely had to repay the loan went out the window after the stock, bond and CD markets tanked the past few years. Consider you are paying 6.8 APR. CDs are paying less than two per cent APY. Many money market funds are paying less than one per cent APY.

  3. Reply
    September 10, 2011 at 11:04 pm

    I agree with the previous answer; put away an emergency fund before paying debt. If these loans are subsidized, it may be wiser to invest the money until graduation. That way you can earn interest on the money while the government pays the student loan interest. When you start paying off the student loans, put additional payments toward the account with the lowest balance. This will reduce not only the number of lenders that require payments each month, but the minimum required payment amount in total. Accounts remain on your credit report for 7 years after closed. Any student loan account paid off early will show as positive payment history and a lower monthly required debt payment.

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