Last Updated on January 15, 2023
How To Repay Student Loans Fast
You may be wondering how to repay student loans fast. It can feel like a never-ending cycle of debt, but the truth is that it’s possible to pay off your loans early. The key is to take control of your finances, find ways to reduce your debt, and make sure you’re not paying more than you have to in interest charges. Let’s look at some tips for how to repay student loans fast!
How To Repay Student Loans Fast
How to Pay Off Student Loans Fast
1. Make extra payments the right way
There’s never any penalty for paying student loans early or paying more than the minimum. But there is a caveat with prepayment: Student loan servicers, which collect your bill, may apply the extra amount to the next month’s payment.
That advances your due date, but it won’t help you pay off student loans faster. Instead, instruct your servicer — either online, by phone or by mail — to apply overpayments to your current balance, and to keep next month’s due date as planned.
You can make an additional payment at any point in the month, or you can make a lump-sum student loan payment on the due date. Either can save you a lot of money.
For example, let’s say you owe $10,000 with a 4.5% interest rate. By paying an extra $100 every month, you’d be debt-free more than five years ahead of schedule, if you were on a 10-year repayment plan.
2. Refinance if you have good credit and a steady job
Refinancing student loans can help you pay off student loans fast without making extra payments.
Refinancing replaces multiple student loans with a single private loan, ideally at a lower interest rate. To speed up repayment, choose a new loan term that’s less than what’s left on your current loans.
Opting for a shorter term may increase your monthly payment. But it will help you pay the debt faster and save money on interest.
For example, refinancing $50,000 from 8.5% interest to 4.5% could let you pay off your student loan debt nearly two years faster. It would also save you about $13,000 in interest, even with payments that stay about the same.
You’re a good candidate for refinancing if you have a credit score in at least the high 600s, a solid income and a debt-to-income ratio below 50%. You shouldn’t refinance federal student loans if you want or need programs like income-driven repayment and Public Service Loan Forgiveness.
3. Enroll in autopay
If you don’t want to refinance your loans, signing up for autopay is another potential way to lower your student loan’s interest rate.
Federal student loan servicers offer a quarter-point interest rate discount if you let them automatically deduct payments from your bank account. Many private lenders offer an auto-pay deduction as well.
The savings from this discount will likely be minimal — dropping a $10,000 loan’s interest rate from 4.5% to 4.25% would save you about $144 overall, based on a 10-year repayment plan. But that’s still extra money to help pay off student loans fast.
Contact your servicer to enroll or find out if an autopay discount is available.
4. Make biweekly payments
This simple strategy is a way to trick yourself into paying extra on debt: Pay half of your payment every two weeks instead of making one full payment monthly.
You’ll end up making an extra payment each year, shaving time off your repayment schedule and dollars off your interest costs. Use a biweekly student loan payment calculator to see how much time and money you can save.Frequently asked questionsWhat is the fastest way to pay off student loans?Are there loans to pay off student loans?When do you pay back a student loan?
5. Pay off capitalized interest
Unless your loans are subsidized by the federal government, interest will accrue while you’re in school, your grace period and periods of deferment and forbearance. That interest capitalizes when repayment begins, which means your balance grows, and you’ll pay interest on a larger amount.
Consider making monthly interest payments while it’s accruing to avoid capitalization. Or make a lump-sum interest payment before your grace period or postponement ends. That won’t immediately speed up the payoff process, but it will mean a smaller balance to get rid of.
6. Stick to the standard repayment plan
The government automatically puts federal student loans on a 10-year repayment timeline, unless you choose differently. If you can’t make big extra payments, the fastest way to pay off federal loans is to stay on that standard repayment plan.
Federal loans offer income-driven repayment plans, which can extend the payoff timeline to 20 or 25 years. You can also consolidate student loans, which stretches repayment to a maximum of 30 years, depending on your balance.
If you don’t truly need these options and can afford to stick with the standard plan, it will mean a quicker road to being debt-free.
7. Use ‘found’ money
If you get a raise, a student loan refinance bonus or another financial windfall, allocate at least a portion of it to your loans. Consider using this breakdown: 50% of the extra income can go toward debt, 30% to savings and 20% to fun, discretionary spending.
Some companies pay off student loans as an employee benefit. Find out if your company offers an employer student loan repayment program, and be sure to enroll.
You can also start a side hustle to pay off student loans fast. Sell items like clothing, unused gift cards or photos; rent out your spare room, parking spot or car; or use your skills to freelance or consult on the side.v
student loan repayment advice
10 Tips for Managing Your Student Loan Debt
Does the debt from your college days seem overwhelming? You’re not alone: Student loans in the U.S. total more than $1.6 trillion.1 That’s second only to the size of the nation’s mortgage debt.2
Ironically, the burden of student loans is making it harder for college graduates to buy a home. Politicians are debating what to do about the problem, but in the meantime, individual Americans can’t wait around for them to work it out.
Developing a plan to manage your student loans is critical to your long-term financial health. We explore 10 steps to help you get control.
KEY TAKEAWAYS
- Developing a plan to manage your student loans is critical to your long-term financial health.
- Know how much you owe, the terms of your loan contract(s), review the grace periods, and consider consolidating your debt if it makes sense.
- Pay off the loans with the highest interest rates first as you tackle your debt.
- Paying down your principal balance and paying your loans automatically can help you reach your goals faster.
- Explore alternative plans, deferment, and loan forgiveness (or discharge) to help you along the way.
1. Calculate Your Total Debt
As with any type of debt situation, the first thing you need to understand is the overall amount you owe. Students usually graduate with numerous loans, both federally sponsored and private, having arranged for new financing each year they were in school.1 So buckle down and do the math. Only by knowing your total debt can you develop a plan to pay it down, consolidate it, or possibly explore forgiveness.
2. Know the Terms
As you sum up the size of your debt, also itemize the terms of every loan. Each one could have different interest rates and different repayment rules. You’ll need this info to develop a payback plan that avoids extra interest, fees, and penalties.
The Department of Education offers an online resource, Federal Student Aid, to help students find their best repayment plans and manage their loans.
3. Review the Grace Periods
As you pull together the specifics, you will notice that each loan has a grace period. This is the amount of time you have after graduation before you have to start paying your loans back. These can also differ. For example, Stafford loans have a six-month grace period, while Perkins loans give you nine months before you have to start making payments.3
To provide economic relief from the COVID-19 pandemic, the U.S. government has suspended all payments and interest on federal student loans until September 1, 2022.4
4. Consider Consolidation
Once you have the details, you may want to look at the option of consolidating all your loans. The big plus of consolidation is that it often reduces the burden of your monthly payments. It also frequently lengthens your payoff period, which is a mixed blessing. Remember, it may give you more time to pay the debt, but it also adds more interest payments too.
What’s more, the interest rate on the consolidated loan may be higher than what you’re paying on some of your current loans. Be sure to compare loan terms before you sign up for consolidation.
There is one important factor you should keep in mind. If you consolidate, you lose your right to the deferment options and income-based repayment plans that are attached to some federal loans. We outline some of these below.5
5. Hit Higher Loans First
As with any debt-payoff strategy, it is always best to pay off the loans with the highest interest rates first. One common scheme is to budget a certain amount above the total monthly required payments, then allocate the overage to the debt with the biggest interest bite.
Once that is paid off, apply the total monthly amount on that loan (the regular payment, plus the overage, plus the regular amount) to repaying the debt with the second-highest interest rate. And so on. This is a version of the technique known as a debt avalanche.
For example, suppose you owe $300 per month in student loans. Of that, a $100 payment is due to a loan with a 4% rate, $100 is due to a loan with a 5% rate, and $100 is due to a loan with a 6% rate. You would plan your budget with $350 to pay off your student loans every month, applying the extra $50 to the 6% loan.
Once it’s paid off, take the $150 used to pay the 6% debt each month and add it to the $100 being used to pay the 5%, thus paying $250 each month for the loan with a 5% rate and speeding up that payoff. Once you wipe off that loan, then the final loan at 4% would be paid at the rate of $350 per month until all student debt is paid in full.
6. Pay Down Principal
Another common debt payoff strategy is to pay extra principal whenever you can. The faster you reduce the principal, the less interest you pay over the life of the loan. Since interest is calculated based on the principal each month, less principal translates to a lower interest payment.
7. Pay Automatically
Some student loan lenders offer a discount on the interest rate if you agree to set up your payments to be automatically withdrawn from your checking account each month. Participants in the Federal Direct Loan Program get this sort of break (only 0.25%, but hey, it adds up), for example, and private lenders may offer discounts as well.6
Note that the American Rescue Plan, President Biden’s stimulus package addressing the COVID-19 pandemic, includes a provision that makes all student loan forgiveness from January 1, 2021, to December 31, 2025, tax-free.7
8. Explore Alternative Plans
If you have a federal student loan, you may be able to call your loan servicer and work out an alternative repayment plan. Some of the options include:
- Graduated repayment: This increases your monthly payments every two years over the ten-year life of the loan. This plan allows for low payments early on by accommodating entry-level salaries. It also assumes you will get raises or move on to better-paying jobs as the decade progresses.
- Extended repayment: Allows you to stretch out your loan over a longer period of time, such as 25 years rather than 10 years, which will result in a lower monthly payment.
- Income contingent repayment: Calculates payments based on your adjusted gross income (AGI) at no more than 20% of your income for up to 25 years. At the end of 25 years, any balance on your debt will be forgiven.
- Pay as you earn: Caps monthly payments at 10% of your monthly income for up to 20 years, if you can prove financial hardship. The criteria can be tough, but once you’ve qualified, you may continue to make payments under the plan even if you no longer have the hardship.
While these plans and other repayment options may well lower your monthly payments, bear in mind that they may mean you’ll be paying interest for a longer period, too. They also aren’t applicable to any private student loans you took out.8
9. Defer Payments
If you are not yet employed, you can ask your student loan lender to defer payments. If you have a federal student loan and you qualify for deferment, the federal government may not charge you interest during the approved deferment period.9
If you don’t qualify for deferment, you may be able to ask your lender for forbearance, which allows you to temporarily stop paying the loan for a certain period of time. With forbearance, any interest due during the forbearance period will be added to the principal of the loan.10
10. Explore Loan Forgiveness
In some extreme circumstances, you may be able to apply for debt forgiveness (also sometimes called cancellation) or the discharge of your student loan. You could be eligible if your school closed before you finished your degree, you become totally and permanently disabled, or paying the debt will lead to bankruptcy (which is rare).
Another less drastic but more specific option is that you have been working as a teacher or in another public service profession.
