Many college graduates these days come away from their studies with a pile of student loans. And once those payments start coming due, they can be a real budget-buster.
The average monthly student loan payment (not including borrowers whose payments are in deferment) amounts to $393 as per the U.S. Federal Reserve. That's a lot of money to spend, especially when you're looking at an entry-level salary.
Even if you have some years in the workforce behind you and your wages have grown as a result, monthly student loan payments can still be a major burden. But before you get too down about paying them back, take some comfort from the following lesser-known benefits.
1. They can improve your credit score
Of the different factors that go into calculating your credit score, your payment history carries the most weight. Payment history speaks to your ability to pay your bills on time consistently. If you're able to keep up with your student loan payments, your payment history will improve, as will your score. Once that happens, you should have an easier time borrowing money affordably the next time you need to. If you're a recent college graduate without a solid credit history, those on-time student loan payments could come in especially handy.
2. They can give you a tax deduction
Taxes are a pain, no matter what stage of life you're at. But here's some good news for people with student loans: If your income isn't particularly high, you might manage to snag a tax break by deducting the interest you pay on your student debt.
Currently, you can deduct up to $2,500 in student loan interest on your taxes, but only if you meet certain criteria. First, the loan in question must be in your name. Next, you can't be listed as a dependent on another person's tax return (like a parent). You also can't have a tax-filing status of married filing separately.
In addition, there are income limits that dictate whether you can claim a student loan interest deduction. For the 2019 tax year, if you're a single tax filer with a modified gross adjusted income (MAGI) above $85,000, the deduction is off the table, and it begins to phase out once your MAGI reaches $70,000. The same holds true if you're a married couple filing jointly with a MAGI above $170,000 -- you lose the deduction completely, and it begins to phase out with a MAGI of $140,000. But if you're a lower earner, that deduction could really help you shave a bundle off your tax bill.
3. They can prevent you from taking on unhealthy debt
Many people who take out student loans recognize how difficult it is to pay that money back. As such, if you have a student loan, you may be less inclined to rack up a costly credit card balance. You will know full well that doing so will only add to your monthly debt obligations and strain your budget even further. And the less unhealthy debt you have, the less money you throw away on interest, and the better shape your credit score stays in.
Most people with student debt would probably prefer not to have it. But if you're stuck repaying those loans for the foreseeable future, try to look for the silver lining. Having that debt could help you build credit, save some money on taxes, and avoid the damaging effect of carrying a credit card balance. And that's reason enough to not get too down about those loans while you're deep in the throes of those monthly payments.