Paying Off Student Loans Faster: A How-to Guide

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Updated on Monday, July 9, 2018

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Whether you’re facing a mountain of student loans or you’re just a few thousand dollars away from finally doing away with the debt, several methods and tactics could help you pay off student loans faster. However, every solution does not fit every situation. Depending on which type of loans you have, what your other debt and financial obligations are and how much disposable income you have, paying off your student loans aggressively may not be your best option.

Consider the pros and cons before you dive in and send every extra penny to your loan servicer.

Pros of paying off student loans quickly

You can save money on interest. Your student loans could be accruing interest every single day, and the quicker you pay off your loans, the more money you could save on interest. Unlike with some other types of loans, student loans don’t have any prepayment penalties, meaning you don’t need to worry about extra fees for paying off your loans ahead of schedule.

It could be easier to qualify for other financial products. Having a student loan payment due each month can impact your debt-to-income ratio (DTI) — your monthly financial obligations divided by your monthly income. Paying off the loan and lowering your DTI could help you get approved for more financial products, such as other loans or credit cards, and may help you qualify for better rates or terms.

You’ll have one fewer debt to worry about. It can be hard to quantify the psychological impact of paying off debt, but there certainly could be benefits to having fewer monthly bills. Even if you still have other debts to repay, striking your student loans from the list could be a relief.

Cons of paying off student loans quickly

It may make more financial sense to pay off other loans first. If you have several types of loans, you may want to focus on other debts before paying off your student loans.

For example, you may have credit card debt that has a much higher interest rate than your student loans. Paying off the credit card could save you more money, and you could then put those savings toward your student loans (or the next highest-rate debt).

It also may make more sense to pay down a secured loan, such as an auto loan, first. Falling behind on your auto loan could lead to your vehicle getting repossessed, which could then snowball into other negative impacts, such as having trouble getting to work. While falling behind on student loans may lead to fees or even wage garnishments, your physical assets aren’t at risk.

There may even be benefits to starting with other unsecured loans, such as a personal loan. If both your personal loan and student loan have the same interest rate, your student loan may actually cost you less overall each year if you qualify for a student loan interest deduction.

You might come out ahead by investing instead. Your student loans may have a low single-digit interest rate. While it’s not guaranteed, you might earn more from investing your money in, say, a 401(k) or IRA than you could save paying off your loans early. However, you’ll need to weigh the risks. There’s no guarantee that your investments pay out, while you know for certain the return you can get on extra student loan payments. The key is to find a balance — pay off your student loans but don’t let that stop you from investing for your future, especially when it comes to funding your retirement account.

You may want to establish an emergency fund first. An emergency fund, generally three to six months’ worth of normal expenses, can help you overcome a financial emergency without having to take on more debt or falling behind on loan payments.

If you deplete your fund, or put off building one to focus on student loan payments, you may have to turn to more expensive forms of debt (such as credit cards) if you’re faced with an emergency.

You may qualify for loan forgiveness. Federal student loans may be eligible for forgiveness and cancellation programs. If you’re on a path towards loan forgiveness, paying off your loans early could lead to paying more than you need to and getting less debt being forgiven.

9 ways to pay off student loans quickly

Paying off student loans ahead of schedule can require planning, hard work and dedication. There’s no single path to success. But whether you can make double your normal payment or are having trouble affording payments at all, there are options and tactics that could speed up the process.

#1 Make additional payments on your loans

Making extra payments when you can or increasing your monthly payment will help you pay off your loans sooner. However, simply sending more money to your loan servicer(s) may not be the best approach.

First, be sure that those extra payments go toward the loan with the highest interest rate. Ask if your loan servicer will allow you to designate which loan the extra funds should go to. Depending on the servicer, your extra payments may be evenly divided amongst all your loans by default.

Also, the servicer may credit your account for future payments instead of putting your payments towards your a loan’s principal. As a result, you might not owe anything next month, but you also won’t be saving as much on interest. To make matters even more confusing, the servicer may continue to withdraw automatic debits from your account even if you’ve already prepaid next month.

Contact your servicer and find out how you can make sure additional payments go toward the principal balance of the loan with the highest interest rate. You may be able to send instructions for how it should apply all your extra payments. Or, if you don’t want to give it a blanket rule, there may be ways to specify how you want each payment applied.

Another option if you can’t afford to make more than your required payment each month is to send loan payments every two weeks rather than once a month. Paying half of the amount early can decrease how much interest accrues during the month, leading to paying less overall in the long run. Make sure you make both payments before the due date to avoid a late payment fee.

#2 Start making payments as soon as you can

You don’t need to wait until after you graduate, or until your grace period is over, to start repaying your student loans. Making payments while you’re in school and during the deferment could lead to significant long-term savings.

Aside from subsidized federal loans, interest will accrue on your loans while you’re in school and during other deferment period. Once you start making full payments, the interest could be added to your principal balance (i.e. capitalized) and your interest rate will now apply to that larger balance.

If you can afford to make payments on your loans while they’re in deferment, you can limit how much interest will accrue and capitalize.

#3 Avoid deferment and forbearance

You may qualify to temporarily stop making payments and place your loans into deferment or forbearance for various reasons, such as returning to school, losing your job or following a medical emergency. However, as with the initial in-school deferment, unsubsidized loans will continue to accrue interest that will capitalize once you start making full payments. Even subsidized loans accrue interest during forbearance.

Continue making payments if you can afford it. Or, even if you have to put your loans into deferment or forbearance, try to make at least partial payments when you can. Doing so will limit how much interest accrues and could keep your loans from growing.

If you’re having trouble affording your payments, you also may be able to switch your federal student loans to an income-driven repayment plan. Depending on your income, doing so could decrease your monthly payment amount and let you continue paying down your loans and avoiding debt default or placing them in deferment and forbearance.

Even if your monthly payment is only a few dollars, with four of the income-driven repayment plans, the remainder of your loan’s balance could also be forgiven after 20 to 25 years of payments. Your monthly payments may also qualify you for other federal forgiveness and cancellation programs.

#4 Increase your income and cut expenses

Whether you can negotiate a raise at work, take on extra hours, find a higher-paying job or start working a side gig for extra income, the more money you have coming in, the more you can afford to put toward your student loans. There are many opportunities to make money online, and while they don’t all pay especially well, they’re often flexible and can be squeezed into your normal routine.

On the other side of your personal cash flow statement, you could try to cut your expenses. There are a lot of ways to go about doing this, everything from looking for fee-free financial accounts and ending subscriptions, to changing your dining and grocery habits.

#5 Consider consolidating your federal student loans

Consolidating (i.e. combining) your federal student loans can be one way to make it easier to manage multiple student loans at once. However, it may not save you money in the long run. That’s because when you consolidate your loans, you’ll be issued a new loan for the total balance with the weighted average interest rate of the loans you’re combining.

If you keep your loans separate, however, you can focus on paying down the loan with the highest interest rates first. Doing so could help you save money, which you can then put toward paying down the next highest rate loan. But that’s not an option if consolidate all your loans together.

Also, consolidation could result in a much longer loan term and lower monthly payment. While you can still make extra payments each month and pay off the loan early, it may be easier to stick to your plan if you don’t have to regularly schedule extra payments.

There are pros and cons to this approach. Consider whether it’s worth it based on your unique situation.

#6 Stay on the standard federal repayment plan

Federal student loans may be eligible for a variety of repayment plans, including plans that base your monthly payment amount on your income. You may want to stay with the standard 10-year repayment plan, as generally the income-driven plans will lead to lower monthly payments and a longer repayment term.

There is a middle ground, though. If you can’t afford the monthly payments on the standard plan, switching plans could help you avoid late payments or missed payments, which could result in fees and potentially hurt your credit. However, you can still pay more than the minimum and pay off your loans faster.

#7 Look into loan forgiveness programs and options

Federal student loans may be eligible for several forgiveness and cancellation programs which could help you get out of debt sooner. Only certain types of federal loans may qualify, and you may need to meet a variety of qualifications and requirements before the Department of Education forgives your remaining debt. Generally, the programs are restricted to those who take on some sort of service work, whether that be as a teacher, government worker or nonprofit employee.

You might also find employer- or government-backed programs that could help you repay your private and federal student loans. These can range from industry-specific opportunities for attorneys and health care workers to more general loan repayment programs that companies offer as an employee benefit.

In some cases, it may make sense to switch to an income-driven repayment plan and decrease your monthly payments to take advantage of a forgiveness or repayment program. You won’t necessarily pay off your loans as quickly as possible, but it could be a worthwhile trade-off if you can pay less out of pocket overall.

#8 Sign up for automatic payments

Many student loan servicers offer a 0.25 percent interest rate discount if you sign up for automatic payments. It may not make a huge difference in your overall costs, but every little bit counts.

#9 Refinance your student loans

By refinancing your student loans — taking out a new loan to pay off your current debts — you may be able to your lower interest rate and decrease how much interest your loans accrue each month. After refinancing, even if you make the same monthly payments you’ll pay off the loans quicker.

You may be able to refinance your student loans by taking out a new private loan and using that loan to pay them off. There are lenders that specifically offer student loan refinancing.

Just keep in mind if you use a private loan to refinance federal loans, you will be forfeiting your option to use federal repayment programs and may not be able to apply for federal loan forgiveness programs.

If you refinance with a private lender, your loans could still be considered student loans for tax purposes and the interest payments may qualify you for the deduction.

Borrowers who have a good credit score and high income may qualify for the lowest rates when refinancing their student loans. However, don’t assume you can’t get a good rate if that doesn’t describe your situation. You can at least apply for preapproval with a soft credit check from some lenders and see your estimated rates and eligibility without affecting your credit scores.

Also, compare your options before you go through with refinancing. You may find that lenders offer you different rates or terms, and you won’t necessarily get your best rate from the company with the lowest advertised rates.

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