Quickly Pay off Student Loans

Additional payments can help you pay off student loans quickly, but you may also be able to refinance to reduce interest.

Paying more than the minimum monthly is the best way to repay student loans. You will spend less interest on your student loans if you pay more each month. The balance will also disappear faster.

Use a loan payment calculator to see how quickly you can get rid of student loans and how much interest you can save.

These seven strategies will help you get rid of student loans faster:

1. Get extra money the right way.

Paying student loans on time or paying more than the minimum is not a penalty. However, prepayment is subject to a catch: Student loan servicers may add the additional amount to your next month’s bill.

This will increase your due date but make it easier to pay off student loans quicker. Instead, you can instruct your servicer online, by phone, or by mail to make overpayments to your balance and keep the due date for next month as it is.

Either you can make additional payments at any time during the month, or you can make a lump-sum student loan payment before the due date. Both can help you save a lot of cash.

2. If you have good credit and a steady income, you can refinance

Refinance student loans will help you quickly pay off student loans without having to make additional payments.

Refinance replaces multiple student loans with one private loan, usually at a lower interest rate. You can speed up your repayments by choosing a loan term that is shorter than the current term of your existing loans.

Your monthly payment may be higher if you choose a shorter term. It will allow you to pay off the debt quicker and help you save on interest.

3. Enroll in autopay

You don’t have to refinance student loans. Signing up for autopay could be another way to lower the interest rate on your student loan.

If you allow them to debit your bank account automatically, federal student loan servicers will offer a quarter-point interest rate discount. Private lenders may also provide an auto-pay deduction.

This discount is unlikely to save you much — dropping the interest rate on a $10,000 loan from 4.5% down to 4.25% would net you $144, assuming a 10-year repayment plan. This is still money that can be used to pay down student loans quickly.

For more information, contact your service provider.

4. Biweekly payments

This is a simple way to trick yourself into making extra payments on your debt. Instead of paying one full monthly fee, pay half of your income every other week.

This will allow you to make an additional payment each year and reduce your interest payments. Use a biweekly payment calculator to see how much money and time you can save.

5. Captured interest can be paid off.

Interest will be accrued if the federal government does not subsidize your loans. At the same time, your student status is valid, including your grace period, periods of deferment, and periods of forbearance. When repayment begins, the interest capitalizes, meaning your balance will grow, and you’ll be paying interest on a greater amount.

Consider making monthly interest payments while it’s still accruing to avoid capitalization. You can also make a lump-sum payment of interest before the grace period ends or postponement expires. This will not immediately accelerate the payoff process, but it will result in a smaller balance that you can get rid of.

6. Stick to your standard repayment plan

Unless you request otherwise, federal student loans are automatically placed on a 10-year repayment schedule by the government. You can pay your federal loans off quickly if you cannot make large extra payments.

Federal loans can be paid on income-driven repayment plans. This allows for a longer payoff time of 20 or 25 years. You can also consolidate your student loans. This will enable you to extend repayment up to 30 years, depending on the balance.

7. You can use ‘found money.’

You should allocate at least 50% of your income to your loans if you receive a raise, a loan refinances bonus or another financial gain. This breakdown is a good idea: 50% can be used to pay off debt, 30% for savings, and 20% for fun, discretionary spending.