Student loan debt can impact your life in a big way, but there are a number of ways to accelerate your repayment.
There are simple methods, like making a budget and paying more than the minimum each month, and more significant changes like loan refinancing. Here's how you can save money by paying off your student loans faster.
The average student loan balance is over $39,000, and since you can be in repayment for decades, your debt can significantly affect your ability to pursue other goals.
- Make a budget: Having a budget gives you an overview of where your money is going, and it can keep you from overspending. A budget is an important tool if you want to pay down debt more quickly.
- Enroll in autopay: Autopay helps ensure that you never miss a payment, and some lenders even offer discounts for enrolling in automatic payments.
- Refinance your student loans: Although student loan refinancing has its risks, it can also allow you to get a lower interest rate, which reduces the overall amount you have to pay and can lead to speedier repayment.
- Pay more than the minimum payment: Paying extra each month, even a small amount, can have a big impact on your overall repayment timeline by reducing the amount of interest you need to pay.
- Consider biweekly payments: This method has a few risks as well, like not being able to use autopay, but budgeting for biweekly payments means you'll make one extra loan payment per year.
- Utilize financial windfalls: If you're fortunate enough to come into some extra cash, consider putting it toward your student loans.
- Take advantage of employer assistance programs: Some employers offer student loan repayment assistance to employees, like matching up to a certain loan payment each month.
1. Make a Budget
Three in five Americans live paycheck to paycheck, and it’s common even for those who earn six-figure incomes. With that in mind, creating a budget—and sticking to it—is an essential task before you can tackle your debt.
List all of your monthly income and expenses. If you don’t have much money left over after covering your bills and variable expenses, you may have to trim your spending. Or you can boost your income through side hustles or by asking your employer for a raise to get additional money for student loan repayment.
2. Enroll in Autopay
Student loan companies allow customers to sign up for automatic payments. Each month, on your statement due date, the lender will automatically deduct the required payment amount. Signing up for automatic payments ensures you never miss a payment, which could damage your credit, and helps you plan your spending.
As an added benefit, enrolling in autopay could help you save money. Federal loan servicers and some private lenders offer discounts for borrowers who sign up for autopay. The discount, if offered, can typically reduce your interest rate by 0.25%. With a lower rate, more of your payments go toward the principal, and you can get out of debt faster.
3. Refinance Your Student Loans
If you have private student loans or federal loans with high interest rates, student loan refinancing is another way to speed up your repayment. When you refinance your debt, you apply for a new loan with a private lender to pay off your existing loans. If you have good credit—or a co-signer with good credit—you may qualify for a new loan with a lower rate than you have on your current loans.
The lower rate can lower your overall repayment cost and your monthly payment, and may allow you to pay off your debt faster.
Consider this example:
With $39,000 in student loan debt at 5% interest and a 10-year repayment term, your total repayment cost would be $49,639—interest charges would add over $10,000 to your loan cost.
But say you refinanced your loan. You want to pay off your debt as fast as possible, so you opt for a seven-year term. Thanks to your good credit and the shorter loan term, you qualify for a rate of 3.5%. Your monthly payment would be higher than it was previously—$524 vs. $414—but your overall repayment cost would be just $44,029. Refinancing would help you save over $5,600. And, you’d be out of debt three years sooner.
|Original Loan||Refinanced Loan|
|Repayment Term||10 years||7 years|
|Total Repayment Cost||$49,639||$44,029|
Best Student Loan Refinance Companies
Refinancing your student loans is a big decision, but in some cases it may be the right move. See our picks for the best student loan refinance companies below.
|Lender||Loan Amounts||Loan Terms|
|Credible||$5,000–$750,000 (varies with lender)||5–20 years (varies with lender)|
|Splash Financial||$5,000–No maximum||5–20 years|
|SoFi||$5,000–No maximum||5–20 years|
|Citizens Bank||$10,000–$750,000||5–20 years|
|PenFed||Not advertised||Not advertised|
|ISL Lending||$5,000–$300,000||7–20 years|
|Laurel Road||$5,000–No maximum||5–20 years|
Think twice before refinancing federal student loans. Refinancing cannot be undone, and refinanced federal loans aren’t eligible for federal benefits like loan forgiveness, income-driven repayment, or forbearance programs.
4. Pay More Than the Minimum Payment
When you take out student loans, you sign a loan agreement that specifies an annual percentage rate (APR) and repayment term.
If you want to pay off your student loans faster, paying more than the minimum required is critical. Not only will it help chip away at the principal, but it will also reduce the amount of interest that accrues.
You don’t have to make huge extra payments to make a difference. Small additional payments can add up. For example, if you had $39,000 in loans at 5% interest and a 10-year term, your monthly payment would be about $414.
If you increased your payment by $25, bringing it to $439, you’d save over $800 in interest charges, and you’d pay off your debt eight months sooner.
Use the federal loan simulator tool to find out how much you can save by adding to your monthly payments.
If you can’t afford your student loan payments and have federal student loans, consider enrolling in an income-driven repayment plan. These plans have longer repayment terms of 20 or 25 years, but they base your payments on your discretionary income. And at the end of your loan term, the government will forgive the remaining balance if you still owe money.
5. Consider Biweekly Payments
Another option is to make biweekly payments. With this approach, you split the minimum monthly payment in half, and you pay that amount every two weeks. Because there are 52 weeks in a year, you’ll pay the equivalent of 13 monthly payments instead of 12, so you can reduce the time in repayment and save money. The American Institute of CPAs has a biweekly payment calculator you can use to estimate how making biweekly payments can affect your debt.
Not all companies allow you to enroll in automatic payments if you intend to make biweekly payments, so you may have to manually make the payments instead. That downside can mean losing out on the autopay discount, and you also run the risk of forgetting and missing the payment due date. If that happens, you could incur late fees, and the lender could report the late payment to the credit bureaus which will damage your credit.
6. Utilize Financial Windfalls
During the year, you may be the lucky recipient of some unexpected windfalls, such as a tax refund or a pay raise. If you put those windfalls toward your debt, you can save money and become debt-free faster.
For example, the average tax refund for the in-progress 2023 tax season (tax year 2022) is $2,910 as of March 31st, 2023. If you had $39,000 in loans at 5% interest and a 10-year term and applied the full refund as a lump sum payment, you’d pay off your debt a full year earlier. And you’d save $1,761.22 in interest charges.
7. Take Advantage of Employer Assistance Programs
Surprisingly, your employer can be an invaluable resource as you repay your debt. According to the Employee Benefit Research Institute, 27% of employers currently offer direct loan repayment subsidies and 44% offer 401(k) contributions tied to your student loan repayment.
Typically, these plans work as an employer match. Your employer matches your student loan payments, up to a monthly maximum. For example, an employer may pay up to $100 per month toward your loans. The 401(k) contributions should work similarly, but will go towards your retirement and not paying off the loan faster. However, it's still nice to get the extra money for retirement.
These programs can be an effective way to pay off your student loans quickly without making cuts to your budget.
The Bottom Line
Your monthly student loan payments may seem big already, and the idea of paying off a large loan more quickly may be intimidating. But there are quite a few easy strategies you can explore, and chances are some of them will work for you.
Paying off your student loans faster can be well worth the effort. Not only will you save money in the long term, being debt-free means less stress and more opportunities to use your money as you see fit, whether that's investing, recreation, or anything else.
Not sure if it makes sense to pay off your debt faster or put money into savings? Think it through with the help of our guide on saving vs. paying off debt.
Is It Smart to Pay Off Student Loans Quickly?
Whether it makes sense to pay off your loans faster is dependent on several factors, including:
- Your interest rates: Depending on when you took out your loans, you could have very high interest rates. If your loans have rates of 6% or higher, paying them off quickly can be beneficial over the long run (if your rates are high, you can consider refinancing). While recent rate hikes have led to higher rates, some already outstanding loans have very low rates, such as federal loans with rates around 3%. If that’s the case, it may make more sense to pay off other debt first, such as credit card balances.
- Your other financial goals: If you have other goals, such as buying a home or starting a family, it may not be a good idea to pay off your loans early. Instead, you can use extra funds to finance those plans.
- Your level of stress: For some people, having student loan debt is a major stressor. If your debt gives you anxiety, paying it off quickly—even if you have relatively low interest rates—can be worth it to get more peace of mind.
Does It Hurt Your Credit to Pay Off a Student Loan Early?
While you’re researching how to pay off student loans faster, you may be worried about how paying off your debt will affect your credit score.
Fully paying off your student loan may cause your credit score to dip slightly, particularly if your student loan was the only installment loan on your credit reports. That’s because your credit mix makes up 10% of your credit score. However, the decrease should be relatively small, and your credit will recover over time as long as you make all of your other payments on time and keep your credit card balances low. Overall, you shouldn’t worry about negatively affecting your credit by paying off your student loan.
How Can You Pay Off Student Loans Fast With Low Income?
If you want to pay off your loans faster but have a limited income, consider these options:
- Make payments during the grace period: Federal loans and some private loans have grace periods, giving you six months after you graduate or leave school before you have to make payments. Although payments aren’t due during this time, making small payments—even just $10 or $25 per month—can help you get rid of your debt faster.
- Loan forgiveness programs: Depending on the type of loans you have and your career path, you may be eligible for federal loan forgiveness programs like Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness.
- Work in a specific field: Some states offer loan repayment assistance programs for certain fields, such as healthcare or education. If you commit to working in high-need areas, these programs will repay a portion of your debt.
Should You Drain Your Savings to Pay Off Student Loans?
While it may be tempting to tap into your savings to pay off your debt, it can be a risky choice.
Student loans may be eligible for forbearance, meaning you can postpone your payments if you lose your job or become seriously ill. But other expenses, such as your rent and utilities, aren’t typically eligible for forbearance. Draining your savings account to pay off your student loans could leave you in a vulnerable position if an emergency pops up later.
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Experian. "Will Paying Off My Student Loans Affect My Credit Score?"
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