How to Reduce Student Loan Debt

Extra payments, employer assistance and refinancing are just a few ways to reduce student loan debt.
Cecilia Clark
By Cecilia Clark 
Updated
Edited by Karen Gaudette Brewer

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GET READY FOR STUDENT LOAN REPAYMENT

Whether you want to ditch debt to focus on other financial goals or simply find relief from this financial burden, there are several ways to reduce student loan debt.

But before you aggressively tackle your student loans, first try to pay down high-interest debt and adequately build your emergency and retirement savings. Without handling these priorities first, you're exposing yourself to greater financial difficulty down the road.

With a stable income, minimal debt and consistent savings contributions, you're in a great position to eliminate student loan debt. Here's how to do it.

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1. Maximize your payments

Make payments while you’re in school. If you haven’t graduated yet, or are in a graduate degree program, you can still make payments during your in-school deferment period. And if your student loans are still accruing interest while you’re in school, try to pay the interest each month. That way, you avoid capitalization (and paying interest on your interest) once you graduate.

Pay more than the minimum. Committing a small amount on top of your regular student loan payment can go a long way in helping you bring down your total debt. For example, let’s say you have $30,000 in student loans at a 5% interest rate. With a 10-year repayment term, you can expect payments of $318 per month. If you pay $100 extra each month, you can reduce the total you’ll pay by about $2,500 and pay off your loan faster by about three years.

Use found money. Even one lump-sum student loan payment can significantly reduce your overall debt and repayment time. Consider the previously mentioned loan: If you make an additional payment of $3,040, which is about the average tax refund amount for 2022 filers according to the Internal Revenue Service, you could pay off your loan about 15 months sooner. If you devote your tax return to your student loans every year, you may be able to cut your loan repayment time in half.

Make biweekly payments. Submitting half payments every other week instead of full payments once a month means you will make one extra payment each year. Biweekly student loans payments also mean you will pay off your loan a whole year sooner and cut down your total costs. For example, on a $30,000 loan at 5% interest, you’ll pay about $950 less.

Get a discount with autopay. Many lenders offer interest rate discounts if you sign up for autopay. The most common discount reported to NerdWallet is 0.25%. Granted, this won’t decrease your student loan debt significantly by itself — a 0.25% interest rate discount on the $30,000 loan will shave two months off of your repayment time if you stick with the initial payment amount. However, combining this method with others can give you a meaningful boost while ensuring you never miss a payment.

2. Ask your boss to pay

Some company benefits packages include student loan repayment. For example, Fidelity Investments will pay up to $15,000 on your student debt. However, this is still a rare perk, so check with your human resources department to see if you are eligible for student loan repayment and what your benefit entails.

3. Use refinancing to your advantage

Refinancing your student loans won’t automatically bring down your student loan debt. But it can bring down your repayment total and cut down your repayment time.

When comparing student loan refinance offers, look for those that have lower interest rates and shorter terms than you currently have. This will help you cut total costs while paying off your loan the fastest. Refinancing with this strategy will likely increase your monthly payment amount. But if it doesn’t, commit to paying at least what you paid previously for an even faster payoff.

For example, if you refinanced your $30,000, 10-year student loan with 5% interest to a seven-year loan with 4% interest, your payments would be about $92 higher each month. But you’d pay off your loan about three years faster while saving a little more than $3,700.

To get the best deal to refinance your student loan, you need a stable income, a credit score in the high 600s and a debt-to-income ratio of 50% or better. In addition, you may get an even better offer if you add a qualified co-signer to your application. But before doing so, make sure you and your co-signer understand the implications and agree on the terms.

You will lose federal benefits if you refinance your federal student loans. Before doing so, be confident in your employment status and ability to repay the new bill.

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