Should I Pay Off Student Loans Early?

Save for emergencies and retirement, and get rid of credit card debt, before paying off student loans early.
Ryan Lane
By Ryan Lane 
Edited by Des Toups

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You should pay off student loans early only if you’ve built a solid financial foundation by:

  • Saving at least one month of basic expenses for emergencies.

  • Setting up automatic contributions to a retirement account like a 401(k) or Roth IRA.

  • Paying off any debt — usually credit cards — that has a higher interest rate than your student loans.

If you’re anxious to pay off student loans fast, pay a little extra while working toward your savings and investment goals. Here’s why meeting these goals first is important, and how to pay off student loans early if your financial footing is already strong.

Start your emergency fund

An emergency fund is critical when you need to replace your tires or get unexpected dental work. If you’ve sent all available cash to your student loans, you may have to put those expenses on a credit card — costing you more money over time.

Ideally, your emergency fund should include three to six months' worth of expenses. But that can feel about as intimidating as paying off student loan debt. Instead, aim to save enough money to feel comfortable, but not so much that it kicks your other goals down the road.

If all you can afford to put aside right now is $500, that will get you out of many common jams; add more once you’re in a better financial position.


Invest for retirement next

Get the company match on a 401(k) if you have one. If not, save as close to 10% of your income as possible in an individual retirement account. (Here's our guide to opening an IRA.)

If you have a 401(k) with matching dollars, that amounts to a guaranteed return on your own contributions. Even if your federal loans are at 6.8% — the highest rate for undergrads in recent years — or you have private loans that are even higher, get that match before you begin paying off student loans early.

Once you’re on track for retirement, you’re free to whale on those student loans all you want. Check your progress with a retirement calculator.

Want to pay less for your student loans?
See if you pre-qualify for refinancing and compare real rates — not just ranges or estimates.

Pay off student loans early — the smart way

Get rid of credit card and personal loan debt before turning your attention to student loans. These types of debt generally charge more in interest.

When it’s time to focus on college debt, there is no prepayment penalty so you won’t be charged if you pay off student loans early. Here are five options if you want to pay more than you’re required to each month:

  1. Pay off capitalized interest. If your student loans are still in their grace period — generally the six months following graduation or leaving school — make a lump-sum loan payment to cover the interest that has accrued. That will keep your balance from growing, making it easier to pay off fast.

  2. Make extra payments. Sign up for autopay, which will automatically deduct your required payment from your bank account each month and can lower your interest rate. Some student loan servicers will let you deduct an extra payment and send it to a certain loan.

  3. Make biweekly payments. You can also make biweekly payments manually online, which will help you stick to a disciplined schedule.

  4. Take advantage of your employer’s generosity. Some companies pay off student loans as a workplace benefit. Ask your HR representative if this is available to you, and enroll as soon as you’re eligible.

  5. Refinance student loans. You can also shorten your repayment timeline by refinancing student loans. With good credit and stable income, you could qualify for a new loan at a lower interest rate through a private lender. Many lenders offer a five-year loan term; you can also pay extra and get rid of the loan sooner.

Use a student loan payoff calculator to see how much each of these repayment strategies could save you.

Spot your saving opportunities
See your spending breakdown to show your top spending trends and where you can cut back.