How to Pay Off Student Loans Fast

Extra payments will help pay off student loans fast, but you can also refinance to save on interest.
Ryan LaneJan 28, 2021
How to Pay Off Student Loans Fast

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Steps

The best way to pay off student loans is to pay more than the minimum each month. The more you pay toward your loans, the less interest you’ll owe — and the quicker the balance will disappear.

Use a to see how fast you could get rid of your loans and how much money in interest you’d save. Here are seven strategies to help you pay off student loans even faster.

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 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.

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  if you want or need programs like income-driven repayment and Public Service Loan Forgiveness.

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If you don’t want to refinance your loans, signing up for autopay is another potential way to .

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.

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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 to see how much time and money you can save.

Unless your loans are subsidized by the federal government, interest will accrue while you’re in school, your grace period and periods of . That interest when repayment begins, which means your balance grows, and you’ll pay interest on a larger amount.

Consider making while it’s accruing to avoid capitalization. Or make a lump-sum interest payment before your or postponement ends. That won’t immediately speed up the payoff process, but it will mean a smaller balance to get rid of.

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The government automatically puts federal student loans on a , 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 plans, which can extend the payoff timeline to 20 or 25 years. You can also , 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.

If you get a raise, a 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  as an employee benefit. Find out if your company offers an , and be sure to enroll.

You can also 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.

Consider setting up rules for yourself, like putting any $5 or $10 bills you receive toward your loans. Some , like Digit and Qapital, will help you set savings goals and rules as well.

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