How To Pay Student Loans Fast

Last Updated on January 19, 2023

How To Pay Student Loans Fast

Student loans are a reality for most people who went to college. But paying them off isn’t always easy. Here’s how to get started.

If you’re like most people, your student loan debt is probably larger than you’d like it to be. You might even have some trouble making the monthly payments. And if that’s the case, you’re likely wondering how—and when—you can pay off your student loans faster?

Well, I’m glad you asked! In this article, we’ll discuss how to pay off your student loans fast and when you should do it.

How To Pay Student Loans Fast

How to Pay Off Student Loans Fast

1. Enroll in Automatic Payments

Many private student loan lenders offer an interest rate discount to borrowers who enroll in automatic payments. This discount is typically 0.25% though some lenders offer a 0.50% discount. Enrolling in automatic payments can also help you avoid late fees by accidentally missing a payment.

2. Make Bi-Weekly Payments

With this strategy you make half of your monthly payment every two weeks. By doing this, you’ll end up making an extra payment each year, because you will make 26 half payments, rather than 12 full payments. Not only will this reduce your loan balance faster, but it can also save you money on interest.

Be sure to request that your lender apply any extra payments to the loan principal, rather than the next month’s payment.

Some lenders may not allow bi-weekly automatic payments, in which case you will have to make your payments manually.

Note: Pay attention to your loan due date when making bi-weekly payments to ensure both of your payments are received on time. You need to make sure you pay your monthly payment amount in full every month.

Now let’s get into the strategies that may require you to make more of a financial sacrifice in order to pay your student loans off faster.

3. Make Extra Payments

If you want to pay off your student loans faster, the best way to do that is to make extra payments. You can make additional payments toward your loan each month on top of the payment you are required to make, or you can make extra payments sometimes, for example if you’ve received some money as a gift or a bonus at work. Be sure to request that your lender apply any extra or over payments to the principal balance on your loan.

4. Make More than the Minimum Payment

If you make all of your minimum payments on time, you will pay off your student loan in the original agreed upon timeframe between you and your lender. However, if you make more than the minimum payment, even if that amount is small, such as ten dollars, you will pay your loans off sooner. For example, if your monthly payment is $50 per month and you pay $60 per month, by the end of the year you have applied an additional $120 toward your debt. That’s nearly two and a half months’ worth of payments you have eliminated, simply by adding an additional ten dollars to your payment amount! Be sure to request that any over payment be applied to the principal balance of your loan.

5. Make Payments While in College

If your student loans don’t require you to pay while in college, that doesn’t mean you shouldn’t. Other than Direct Subsidized Loans, you are responsible for the interest that accrues on your loans while in college. You can make interest only payments which will be applied to the interest accruing on your loan.

Here’s Why You Might Want to Do This

Once your loans enter repayment, the interest is capitalized (i.e., added to your loan principal balance and then you pay interest on that new increased balance). If you have paid all of the interest while in college, there is no interest to capitalize and your loan principal will reflect the amount you originally borrowed when your grace period ends.

You’re not limited to interest-only payments while in school. If you are working it is wise to make whatever payments you can toward your student loans to reduce the overall interest you will pay and your balance when your grace period ends.

6. Paying Off Outstanding Interest to Avoid Capitalization

All federal student loans come with a grace period. This is the period of time after you’ve left school (or drop below half-time enrollment) and before you must start making payments on your student loans. At this point, the interest you have been accruing on your loans has not been added to your loan balance. If possible, pay off the accrued interest during your grace period to avoid that amount being capitalized (added to your loan principal) at the end of your grace period.

Now let’s take a look at some general strategies you can employ to help you pay your student loans off faster.

7. Create a Budget

There are few things more effective at getting your finances under control than a budget. Knowing how much money you have coming in and where it is going will help you identify areas where you can cut back and apply that money to your student loans. A budget doesn’t have to be difficult to create. There are several budgeting apps available to simplify the process.

8. Use a Savings App

There are several banks out there that let you round up the amount of your purchase to the next nearest dollar and place the difference into your savings account. This is a great way to save more money that you can then apply to your student loan balance. If your bank does not offer this feature, check out an app like ChangEd. The ChangEd app allows you to round-up your daily purchases or schedule savings based off your habits.

9. The Debt Snowball Method

The debt snowball method is a strategy to help you make physical and mental progress toward your goal of being free of student loan debt. Here’s how it works.

First, list all of your student loans from smallest balance to largest balance. Once you have your debt written down, you’ll know where to start. Begin by putting all of your extra money toward your smallest debt first. Once this debt is paid, you will take the money you were applying to that debt (and any additional funds), add it to your minimum payment amount, and tackle the next highest balance student loan.

Why the Debt Snowball Works

The idea behind the debt snowball is two-fold. It gives you an outlined method for tackling your debt, and as you knock out those smaller student loans you will feel a psychological boost from having fewer and fewer debts to pay. Sticking with the debt snowball can build momentum that keeps you motivated.

10. The Debt Avalanche Method

The debt avalanche method is another strategy for how to pay off your student loans. You’ll start by listing all of your loans and their corresponding interest rates. Once you’ve done this, identify the loan with the highest interest rate. This is the loan you will pay off first. Make the largest payment you can afford on the highest interest loan, making only the minimum payments on all other loans.

Once the highest interest rate loan is paid off, move to the next highest interest rate loan on the list in the same fashion until all of your debts are gone.

Why the Debt Avalanche Works

Tackling your loans based on interest rate can help you save money overall by knocking out your highest interest rate loans first. As you eliminate loans, you will increase the payment on each subsequent loan until all of your debt is paid in full.

11. Refinance Your High-Interest Student Loans

One of the best ways to save on student loans is to reduce your interest rate. You can do this by refinancing your high-interest student loans. When it comes to private student loans and PLUS loans, you may be able to find a more competitive interest rate in the refi market. This also allows you to roll many student loans into one, reducing the number of bills you need to pay each month. Here’s what you need to know about student loan refinancing once you have located all of your student loans.

how to pay off student loans fast with low income

9 ways to pay off your student loans fast

Some of the best strategies to pay off your student loans faster include:

  1. Make additional payments.
  2. Establish a college repayment fund.
  3. Start early with a part-time job in college.
  4. Stick to a budget.
  5. Consider refinancing.
  6. Apply for loan forgiveness.
  7. Lower your interest rate through discounts.
  8. Take advantage of tax deductions.
  9. Ask your employer about repayment assistance.

1. Make additional payments

If you can afford it, make larger payments to cut the principal more quickly and reduce the total payoff time. By reducing the principal balance, you’re minimizing the duration of the loan period and the interest accrued.

For example, a $25,000 student loan with 6.8 percent interest and a 10-year payback period would cost $288 a month. Using a student loan calculator, you can see that paying $700 a month instead of $288 enables the borrower to repay the loan in just over three years.

Another strategy is to add payments, sending in checks every two weeks rather than monthly.

“Just be sure to advise your loan servicer to apply your extra payment to your principal balance, rather than placing your account in a ‘paid ahead’ status,” says Jessica Ferastoaru, student loan counselor at Take Charge America. “This will allow you to pay down your principal balance more quickly and save money on interest.”

If you have multiple loans, there are several strategies for choosing which to send those extra payments to. To save the most money, it’s usually best to start with the loan with the highest interest rate.Key takeawayMaking larger payments will help you cut through the principal quicker, which will allow you to pay off your loan sooner.

2. Establish a college repayment fund

If you’re not sure how much more you can devote to your student loans every month, set up automatic transfers to a separate savings account specifically for college debt. Transferring money automatically into savings is effective because you won’t be able to spend it on something nonessential like clothes or dining out.

Just make sure to set up a separate account for paying back your college debt. Don’t use a checking or savings account you already have, because you might be tempted to use that money for something other than your student loans. Compare savings accounts and put your money in a high-yield savings account to maximize your returns.Key takeawaySetting up an account specifically for your student loan repayment funds can be a great way to compartmentalize your finances or control out-of-budget spending.

3. Start early with a part-time job in college

Getting a part-time job while attending college is one way to keep college debt in check, because you can use those earnings to get a head start on paying down your balance.

Let’s say you’re able to work a part-time job that allows you to put away $500 a month. In a year, that’s $6,000 you can put toward paying off your loans. What’s more, you can earn up to $7,040 a year without affecting your eligibility for need-based financial aid.

Check your school’s resources or career center to see if they’re hiring for any on-campus jobs. Typically, on-campus jobs tend to be more understanding of unusual or busy class schedules.Key takeawayIf you’re still able to properly manage your coursework, a part-time job is a great way to earn enough money for a student loan savings account while learning time-management skills.

4. Stick to a budget

Not knowing how to manage finances properly can prevent students from paying off their loans quickly. That can lead to delays in pursuing more fulfilling financial goals. By planning and understanding your monthly cash flow, you can make some necessary sacrifices and avoid falling off the budgetary wagon.

“If you’re trying to pay down your student loans faster, one of the best ways to reach your goal is to develop a budget,” says Ferastoaru. “If you’re able to meet a savings goal each month by sticking to a budget, you can use that money to pay down your student loans.”

Do an assessment of your spending habits and your ability to keep a budget. If you find it hard to maintain a solid budget as a college student, use a student budget calculator to help you get on track and stay there.Key takeawayYour financial health and spending habits can greatly impact your ability to pay off your student loans. Be diligent about sticking to a budget during your repayment period.

5. Consider refinancing

If you’re not sure how to pay off student loans quickly — or if it doesn’t seem feasible — you may be paying too much in interest.

In this case, you might want to consider refinancing your student loans for a lower interest rate, a shorter repayment period or both. While refinancing federal loans with a private lender will cause you to lose some federal benefits, it could also allow you to pay off your loans faster.

Timing is key with this strategy. Your credit score is typically going to be at its lowest immediately after graduation, which generally means that the interest rates you’re offered will be higher. Many lenders also require you to have stable income or employment history to qualify. This makes it doubly important to shop around with a few lenders in order to see which offers you the best rates.

You can refinance your loans more than once, which may be worthwhile if you drastically improve your credit score or increase your annual income.Key takeawayRefinancing may be a good option if you have private loans. While it’s not for everyone, refinancing can help you score a lower interest rate or different repayment terms.

6. Apply for loan forgiveness

Forgiveness programs can eliminate all or part of your student loan debt, but each program has unique requirements and strict approval standards.

The most well-known program is Public Service Loan Forgiveness (PSLF). To be eligible for this program, you must be employed full time in a public service position by a government or nonprofit organization and make 120 qualifying payments under an income-driven repayment plan. Getting approved for the program is difficult, so read through the details carefully to stay on track.

The Teacher Loan Forgiveness program is another option. To qualify, you must have an eligible loan under the Direct Loan Program or FFEL Program and teach full time for five consecutive years in a low-income school or educational service agency. At least one of those years must be after the 1997-98 academic year. The program forgives up to $5,000 or $17,500, depending on your specialty.

It’s also possible to have a portion of your student loans forgiven if you’re on an income-driven repayment plan. Once the 20- or 25-year repayment term ends with these programs, any remaining balance is forgiven. If you hit the end of your repayment period before 2026, the forgiven amount is not taxable.Key takeawayIf you’re willing to work in a specific occupation and adhere to a variety of other program requirements, it may be possible to get a substantial portion of your loans forgiven.

7. Lower your interest rate through discounts

Most lenders will offer a 0.25 percent to 0.5 percent discount if you set up automatic payments on your loan.

In addition, private lenders may offer other interest rate discounts if you meet certain criteria, like making a certain number of on-time payments or taking out another loan with the same company. If you have private student loans, contact your lender and ask about any opportunities for interest rate reductions or discounts.Key takeawayIt may be possible to reduce the interest rate on your existing loans by setting up autopay or asking about loyalty discounts.

8. Take advantage of tax deductions

The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income. The deduction is available for both federal and private student loans.

You can claim this tax deduction if you’re legally required to pay interest on a qualified student loan and your filing status is not married filing separately. There are also adjusted gross income limits for this program, which are set annually. You do not need to itemize to claim this deduction.

Those who qualify for the deduction will generally save a few hundred dollars on their income taxes, which could help with student loan repayment. “If you pay less in taxes, this could free up some extra money to pay down your debt. It’s a good idea to speak with a tax advisor to make sure you’re taking advantage of any relevant tax benefits related to your education,” says Ferastoaru.Key takeawayThe student loan interest deduction allows you to deduct up to $2,500 in interest paid on federal and private student loans.

9. Ask your employer about repayment assistance

There are many employers that have begun offering student loan repayment assistance or tuition reimbursement. Some employers, including Starbucks and Walmart, even offer free college for workers who sign up for degree programs within a chosen network of courses and schools.

Employers can contribute up to $5,250 toward an employee’s college tuition or student loan repayment assistance through 2025 with favorable tax treatment. This benefit is not considered taxable income for the employee, which is a major boon for workers who are pursuing higher education while continuing to work.

Employers can deduct the expense on their end as well, paving the way toward a considerable tax benefit on both ends. Check your employee manual or speak with your HR department to see what kind of tuition assistance or loan repayment options are available at your company.

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