Last Updated on January 16, 2023
If you’re struggling to pay off your private student loans, you’re not alone.
Private student loans are notoriously difficult to pay off because they don’t offer the same repayment options as federal student loans. In this post, we’ll go over some of the best strategies for paying off private student loans and how to avoid making mistakes that will make them even harder to pay off!
How To Pay Off Private Student Loans
How to Pay Off Student Loans Fast: 12 Options
If you’re eager to start paying off your student loans, explore these 12 techniques to find the best way to pay off student loans for you:
- Pay More Than the Minimum
- Refinance Your Student Loans
- Make Biweekly Payments
- Pay Off High-Interest Loans First
- Take Advantage of Interest Rate Reductions
- Create a Budget
- Work for an Employer With Repayment Assistance
- Avoid Extended Repayment Terms
- Utilize Tax Deductions
- Make Lump Sum Payments
- Use Loan Forgiveness Programs
- Join the Military
1) Pay More Than the Minimum
Paying more than the minimum and putting the extra money toward reducing your principal balance is the fastest way to become debt free.
This strategy lowers the remaining amount due and, because interest is calculated on your remaining balance, reduces total interest owed.
You can set up an automatic monthly payment for more than the minimum to ensure you always pay a little extra. You can also take extra money you earn, such as a year-end bonus, and apply it to your loan balance.
2) Refinance Your Student Loans
Refinancing involves getting a new loan at a lower interest rate. If you keep payments the same or increase them, but reduce your interest rate, you’ll pay less in interest in the long term. And more of your payment will go toward reducing the principal balance with student loan refinancing.
You give up important protections on federal student loans by refinancing such as the ability to use an income-driven repayment plan, and you need to qualify for a new loan based on your income and credit score. However, if you’re eligible, the savings from a lower interest rate can be substantial.
If you want to learn more about refinancing, you can check out our guide to the best places to refinance student loans, or compare some lenders below.
3) Make Biweekly Payments
Instead of paying your loan monthly when the payment is due, you can divide your required payment in two and pay it every two weeks.
This little trick does help you pay off your student loans faster because you will end up making 26 payments, which amounts to 13 months’ worth of payments instead of the 12 you would have paid with once-a-month payments.
4) Pay Off High-Interest Loans First
Some of your student loans may charge interest at a higher rate than others. If you can pay those more expensive loans with higher interest rates off first, you’ll save more on your total interest.
While you’ll need to pay the minimum on every loan you hold, putting any extra cash towards your highest interest loans first helps pay them down faster. That leaves loans with your lower interest rates to accrue interest for a longer period of time, rather than the loans with the high interest rates.
5) Take Advantage of Interest Rate Reductions
Many student loan servicers provide a deduction on interest if you set up auto-pay. Some also reduce interest after you’ve made a certain number of on-time payments.
Interest rate reduction programs vary among lenders, so find out what your options are with getting your lender to reduce your rate. And remember, even a slight interest rate reduction can make a big difference if you’re dealing with $100K in student loan debt.
6) Create a Budget
With a budget that includes student loan repayment, you’ll be more mindful where your money goes and can plan for more money to be put towards paying off student loans early and you can eliminate debt faster.
To create a budget, track your spending to see where you’re going overboard. Budget for necessities first, such as rent and food. Then, work some money into the budget for extra student loan payments before allocating for your wants.
When you abide by your budget and make extra payments every month, your student loan debt will disappear more quickly.
7) Work for an Employer with Repayment Assistance
Employer student loan repayment assistance is growing in popularity as a workplace benefit. Employers who offer this benefit pay a certain amount of money towards employees’ student debt each month. Amounts vary, but typically employers offer around $100 to $300 monthly.
When you work for a company that offers this benefit, keep paying the minimums yourself and use the extra funds from your employer to pay down the balance more quickly.
8) Avoid Extended Repayment Terms
Many federal student loan repayment options, including income-based plans, extend the time to pay off your loan.
While this can make your monthly payment lower and help in times of financial hardship, it’s best to avoid extended plans if your goal is to pay off your loans faster. You’ll pay more in interest when you stretch out your repayment period, and it will take years longer to become debt free than if you stuck with the standard plan.
9) Utilize Tax Deductions
For most student loan borrowers, you can take a tax deduction of up to $2,500 annually for student loan interest. When you take this student loan interest tax deduction based on the actual amount of interest you pay, it reduces your Adjusted Gross Income (AGI), so you pay less in taxes.
However, if your income exceeds $70,000 as an individual or $140,000 if you are married filing jointly, you lose part of the deduction. And you lose the full deduction if you make at least $85,000 as an individual or $170,000 if married filing jointly.
10) Use Extra Cash to Make Lump Sum Payments
A LendEDU survey found that over half of student borrowers who are able to pay off their student loans in one to five years made at least one lump sum payment of at least $5,000, making this one of the best strategies for paying off student loans fast.
When you come into some extra money for example from a tax refund, don’t spend the cash. Instead, put the funds towards paying off your student debt with extra payments or a larger payment. This will reduce the principal balance you owe, so it will reduce your interest and the outstanding amount you have to pay back.
11) Use Loan Forgiveness Programs
If you work in a qualifying public service job, you can get your debt forgiven after you make 120 on-time payments. This strategy does require you to pay for about a decade. But, after about 10 years, you can have your remaining balance, which allows you to become debt free much faster. Public Service Loan Forgiveness has strict criteria, so know the rules if you want the government to forgive part of your debt.
There are also other student loan forgiveness programs that you may be eligible for; just be sure to read the fine print before pursuing one of these options.
12) You Can Join the Military
If you join the military with some student loan debt, you may be able to pay it off using the GI Bill or another form of relief, such as military student loan forgiveness.
Typically, you’ll need to commit to a certain number of years in the active military to get help with your debt. Research some of the different programs to find out requirements and explore your options.
how to pay off student loans fast
How to Pay Off Student Loans Fast: 9 Useful Hacks
1. Pay More Than the Minimum
Lenders set a minimum monthly repayment amount for student loans. But paying more than the minimum can go a long way toward eliminating student debt fast.
Take these examples from the Federal Student Aid office. A borrower who takes out $15,000 in student loans can pay off that balance a full year earlier by sending in an extra $15 per month. Throw an additional $60 per month at the balance and you’ll pay it off three years earlier.
Make sure to ask your lender to apply extra payments directly to the principal. That can save you a bundle in interest — over a 10-year repayment plan, paying an extra $60 a month could mean saving nearly $1,200.
2. Make Interest Payments in School
Interest is a major reason borrowers pay down their loans only to watch the balance barely change. But you can pay off loans faster and save money by making interest payments while still in school.
Most student loans begin accruing interest long before borrowers begin making payments. Other than Direct Subsidized Loans offered by the federal government, borrowers will see interest accumulate while enrolled.
How much of a difference can that make? If you borrow $27,000 in unsubsidized loans while in college, you’ll add around $3,400 in interest to the loan by the time your first monthly bill shows up.
Private loans with higher interest rates can rack up even more debt. On a $33,000 loan with 9% interest, borrowers will add more than $9,000 to their balance in interest six months after graduation.
Paying down the interest while in school means paying off the loan faster. When it comes to financing your education, prioritizing subsidized loans can also make it easier to repay loans down the road.
3. Research Repayment Plans
The Federal Student Aid program puts borrowers on their standard repayment plan, which sets monthly payments based on a 10-year repayment schedule. For most borrowers, this plan will pay off the loan on the fastest timeline. Still, other plans may make more sense for you depending on your income and how much money you borrowed.
Some repayment options, such as the extended repayment plan, use a longer timeline. And while income-based repayment plans make sense for some borrowers, these plans typically do not prioritize paying off loans as quickly as possible.
4. Refinance to Lower Your Interest
Borrowers can refinance their student loans to lower their interest rates and pay off their loans sooner.
Consider an average loan of $36,400 on a 10-year repayment plan. Borrowers paying the average federal loan interest rate of 4.66% would pay $9,200 in interest. But by refinancing to a 2.59% interest rate, borrowers can save $4,250-$6,750 in interest, depending on how quickly they pay off the loan.
Loan consolidation may also help borrowers lock in lower interest rates and pay off their student loans faster. Before you refinance or consolidate any loans, look into how the change will affect your monthly payments and the full repayment date.
5. Pay Off Loans With Every Paycheck
Most lenders require monthly payments for student loans, but you can pay your loan off in less time by making more frequent payments.
For example, making biweekly payments when your paycheck hits your bank account can mean paying off your debt faster. That’s because making 26 biweekly payments at half the monthly loan amount adds up to one extra full payment each year.
6. Research Loan Forgiveness Plans
The Federal Student Aid program offers several loan forgiveness plans. Teachers and other professionals in public service fields may qualify for loan forgiveness. However, loan forgiveness can require 120 monthly payments, so some borrowers may be able to pay off their loans in less time.
Similarly, you should research loan discharge options. Students whose college closes, as well as those with a permanent disability, can apply to discharge their loan balance.
7. Sign Up for Automatic Payments
Many lenders lower the interest rate for borrowers who sign up for automatic payments. The Federal Student Aid program, for example, cuts interest rates by 0.25%. The lender then automatically deducts payments from the borrower’s bank account.
While a small decrease in interest likely won’t mean paying off loans faster, automatic payments can ensure you don’t miss a payment and end up pushing back your repayment date or losing eligibility for loan repayment plans.
8. Research Employer Student Loan Repayment Plans
Some employers offer student loan repayment plans as an employee benefit. This perk can save you money while also paying off your loans faster.
These plans take several forms, according to SHRM. For instance, employers may make monthly payments to the loan servicer in employee-assisted repayment plans. Other employers may make matching contributions, similar to a 401(k) match. Finally, some employers may let their employees choose between a student loan contribution or retirement contribution.
Only a small number of companies offer these benefits. Borrowers on the job market can research employee benefits and ask about student loan repayment plans.
9. Use Your Tax Refund to Pay Off Loans
Extra payments are one of the best ways to pay off student loans fast. But many new graduates struggle to find money for extra payments. Putting your tax refund toward your student loan balance can potentially take years off your repayment date.
Similarly, consider setting aside bonuses, raises, and monetary gifts to pay down your loans. As with other extra payments, make sure your lender applies the money toward your principal rather than toward interest or your next monthly payment.