It’s easy to put off paying for your student loans, since some student loan repayment plans have repayment periods upward of 20, 25, and 30 years. However, if you don’t want to spend a few decades paying off your student loans, you can take steps right now to pay them off fast, including making payments while you're still in school, making larger and/or additional payments, and more.
Key Takeaways
- The more you pay while you’re still in school, the less interest will get added to your principal balance after graduation.
- Some student loan lenders offer discounts just for activating autopay, allowing you to reduce how much you’ll pay in interest over the life of your student loans.
- For borrowers with private student loans (or a mix of federal and private student loans), refinancing student loans pays off your existing loans, leaving you with one payment for the new refinanced loan.
1. Pay While You’re in School
If you’re currently a student, every little bit you can pay now will help you in the long run. If you can afford to chip away at your loans while in school, then you’ll owe less when you graduate. You can even make payments during your six-month grace period for direct subsidized, unsubsidized or Federal Family Education Loans (FFEL). The more you pay before your loans capitalize, the less interest will get added to your principal balance after you leave school.
2. Pay More Than the Minimum
Based on the size of your loan, your repayment plan will have a minimum amount that must be paid each month to pay off that debt within the repayment period. Making the minimum payment is enough to keep you on track with your repayment plan, but nothing is stopping you from paying more than the required amount each month. If you can add even just a few more dollars to your minimum monthly payment, then you could begin to shave months off of your repayment period.
For many loan servicers, paying extra may go toward your next month's payment, which includes principal and interest. Applying your extra money to your principal will pay off your loan faster as it diminishes that amount that is earning interest. To focus your efforts on your principal, check with your loan servicer. There may be a spot to apply extra money to principal alone.
3. Make an Extra Payment
Whether you come into a work bonus or get a nice tax refund, you can use a lump sum of extra cash to pay down your student loan debt. You can pay toward your principal to focus on lowering the overall amount you owe.
4. Activate Autopay
There’s nothing quite like “set it and forget it.” Some student loan lenders, including federal loans, offer autopay discounts, so you could lower how much you’ll pay in interest over the life of your student loans as a benefit for staying on track with your repayment period.
5. Stick to the Standard Repayment Plan, if You Can
When you leave school, you’re automatically enrolled in the Standard Repayment Plan, which is set to help you pay off your loans in 10 years. This is the fastest repayment plan available, and you’ll pay the least in interest over your repayment period. Compare this to income-driven repayment (IDR) plans, which have longer repayment periods of either 20 or 25 years (depending on the plan).
The monthly payments for income-driven repayment (IDR) plans are typically set as a percentage of your discretionary income, whereas the Standard Repayment Plan is based on your outstanding loan balance divided by 10 years. As a result, each of the Standard Repayment Plan’s 120 payments is the same every month, whereas IDR plans can change annually based on family and income changes.
6. Tap Into Employee Benefits
Some jobs and companies offer matching student loan repayment benefits. They’ll match your payments every month, up to a certain amount. Employers can offer employees up to $5,250 per year in tax-free student loan repayment benefits through 2025. Not every company offers student loan repayment matching, but you may want to ask your employer if they have any special benefits like this. It could help you pay off your loans much faster.
7. Find a Secondary Source of Income
If you’re struggling to find extra funds to put toward paying down your student loans, consider turning a hobby into a source of additional income or use your extra time to get involved in the gig economy. You could deliver groceries, walk dogs, sell homemade creations online, etc. If your primary source of income is used to pay your other bills, then you can use your secondary source of income to chip away at your student loan debt. Just be mindful—jobs that are considered 1099 contractor status do not have taxes taken out. You'll have to set aside money from each paycheck or face a hefty tax bill at the end of the year.
8. Revise Your Budget
If you’ve made a budget that only has you making the minimum monthly payment, you will most likely take longer to pay off your debt. If you have the means, change your budget to focus on paying off your student loans faster. That might mean less money going toward other things, such as dining out, traveling, or shopping. Freeing up those funds means you can devote more money toward paying down your student loans.
9. Check Tax Deductions
The student loan interest deduction lets borrowers claim up to $2,500 in student loan interest payments from last year, depending on their modified adjusted gross income (MAGI). You don’t need to itemize deductions to claim this, and it’s available for federal and private student loans. You then put this tax deduction toward paying down your student debt even further. There might be other deductions and credits for which you’re eligible. Keep in mind that the student loan interest deduction is gradually reduced and eventually phased out for higher-income taxpayers.
For the 2023 tax year, the MAGI phaseout for single, head-of-household, or qualifying widow(er) filers begins at $75,000 and ends at $90,000. If you are married and filing jointly, the MAGI phaseout begins at $155,000 and ends at $185,000.
10. Look Into Refinancing
If you have private student loans or a mix of federal and private student loans, you may want to think about refinancing your student loans. Refinancing means you’ll take out a new, private loan that pays off your existing loans, and then you’ll make one payment to your new, refinanced loan. Make sure you can get a lower interest rate than what you’re paying now and craft your repayment plan around what you can reasonably afford. There are several student loan companies for refinancing to choose from, each with different benefits and interest rates.
Remember that you lose all federal benefits and protections when you refinance, such as Public Service Loan Forgiveness (PSLF), Saving for a Valuable Education (SAVE) eligibility and deferment and forbearance options. Only take this route if you don’t plan to use federal benefits.
What Is the Smartest Way to Pay Student Loans?
Perhaps the smartest way to pay off your student loans (as well as one of the fastest) is to pay more than your minimum payment. As you reduce the principal balance of your debt, the amount of interest that you’ll owe over the life of the loan also decreases.
Is There a Downside to Paying Off Student Loans Early?
There can be a downside to paying off your student loans early. Although student loans do charge interest, compared to consumer credit cards, that rate is fairly low. If you prioritize paying your student loan over paying down higher interest debt, you may end up paying more in the long run. Eliminating your student loans will also reduce the diversity of your credit mix. In the months immediately afterward, you may see a dip in your credit score, but it will quickly return to normal as you continue to make other debt payments on time.
Can You Negotiate Student Loan Payoff?
While it's entirely possible to negotiate a student loan settlement, this possibility won't be an option for everyone. For one, some lenders will be unwilling to accept a debt settlement. If your lender is open to negotiating, then your loans will likely have to be either severely delinquent or in default before a settlement would even be considered. Additionally, if you do manage to secure a debt settlement, this will likely hurt your credit score, and the forgiven debt will be taxed as income.
The Bottom Line
Paying back your student loans might feel overwhelming, but there are a few different ways that you can pay them off sooner. Set clear goals, revise your budget, and take advantage of employer benefits and educational tax breaks.
The more you focus on paying off your student loans right now, the more money you’ll have for yourself once you do.
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Paying While You're in School
Making payments towards your student loans while you're still in school can have long-term benefits. By paying off some of the loan balance before graduation, you can reduce the amount of interest that accrues on your loans. This can help you save money in the long run [[1]].
Paying More Than the Minimum
While making the minimum monthly payment is necessary to stay on track with your repayment plan, paying more than the minimum can help you pay off your loans faster. By adding extra money to your monthly payment, you can reduce the principal balance and decrease the amount of interest that accrues over time [[2]].
Making Extra Payments
If you come into a lump sum of extra cash, such as a work bonus or tax refund, you can use it to make an extra payment towards your student loan debt. Applying this payment towards the principal balance can help lower the overall amount you owe and shorten your repayment period [[3]].
Activating Autopay
Many student loan lenders, including federal loans, offer autopay discounts. By activating autopay, you can set up automatic payments and potentially reduce the amount of interest you'll pay over the life of your student loans. It's a convenient way to stay on track with your repayment period [[4]].
Choosing the Standard Repayment Plan
When you leave school, you are automatically enrolled in the Standard Repayment Plan, which is designed to help you pay off your loans in 10 years. This plan typically results in the least amount of interest paid over the repayment period. Comparatively, income-driven repayment plans have longer repayment periods and can change annually based on income and family changes [[5]].
Taking Advantage of Employee Benefits
Some jobs and companies offer matching student loan repayment benefits. This means that your employer will match your student loan payments up to a certain amount each month. It's worth checking with your employer to see if they offer any special benefits like this, as it can help you pay off your loans faster [[6]].
Finding a Secondary Source of Income
If you're struggling to find extra funds to put towards your student loans, consider finding a secondary source of income. This could involve turning a hobby into a source of additional income or getting involved in the gig economy. By using your secondary income to make extra payments towards your student loan debt, you can make progress in paying it off [[7]].
Revising Your Budget
If you've made a budget that only includes the minimum monthly payment for your student loans, it may take longer to pay off your debt. By revising your budget and allocating more funds towards your student loans, you can accelerate the repayment process. This may require cutting back on other expenses like dining out or traveling [[8]].
Checking Tax Deductions
The student loan interest deduction allows borrowers to claim up to $2,500 in student loan interest payments from the previous year, depending on their modified adjusted gross income (MAGI). This deduction can be used to further pay down your student debt. Keep in mind that the deduction is gradually reduced and eventually phased out for higher-income taxpayers [[9]].
Considering Refinancing
If you have private student loans or a mix of federal and private student loans, you may want to consider refinancing. Refinancing involves taking out a new, private loan to pay off your existing loans, resulting in one payment for the refinanced loan. It's important to carefully evaluate the benefits and interest rates offered by different student loan refinancing companies. However, keep in mind that refinancing federal loans means losing federal benefits and protections, such as Public Service Loan Forgiveness (PSLF) and deferment options [[10]].
In summary, the article you provided offers several strategies to pay off student loans faster. These strategies include making payments while still in school, paying more than the minimum, making extra payments, activating autopay, choosing the standard repayment plan, taking advantage of employee benefits, finding a secondary source of income, revising your budget, checking tax deductions, and considering refinancing. Each strategy has its own benefits and considerations, so it's important to evaluate which ones align with your financial goals and circ*mstances.
