6 Ways To Pay Off Student Loans Fast

No one likes paying off student loans. It can be a strain on your budget, preventing you from reaching your full financial potential.

However, putting extra money towards your student loans isn’t the best choice in every situation. See the circumstances where paying off your loans faster may not be a good idea, and review some repayment strategies to pay off your debt early if you choose.

Should You Pay Off Your Student Loans Early?

For some people, paying off student loan debt as quickly as possible is their biggest financial goal. But there are times when you shouldn’t rush to eliminate your student loans.

For example, you may not want to sacrifice your future retirement for a faster student loan payoff. If your employer matches 401(k) contributions, for instance, it could be wise to contribute what’s needed to get the match in lieu of putting more money toward your student loan balance.

If you’re trying to buy a house, start a family or launch a business, you may want to beef up your savings instead of throwing extra money toward your loans. If you don’t have an emergency fund, then you should likely make that a priority instead of paying off your student loans.

Additionally, if you’re eligible for any kind of loan forgiveness program, you might want to reconsider paying off your loans faster. You may end up saving more by opting for loan forgiveness, even if you’re technically paying off your student loans for a longer period of time.

But if the above scenarios don’t apply to you, then paying off your student loans early may be the right financial decision.

How to Pay Off Your Student Loans Fast

Paying off your student loans quickly requires an intelligent, deliberate strategy. Consider the following tried-and-tested methods:

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1. Pay More Than the Minimum Each Month

The most obvious way to pay off your student loan ahead of schedule is to pay more than the minimum every month. You can use a student loan calculator to see how extra payments can impact your student loans. Play around with different figures to see how much faster you could become debt-free.

Unfortunately, making extra payments isn’t always as simple as it sounds. Each loan servicer handles additional payments in their own way. Some lenders may put your extra cash towards interest while others may apply it towards your next month’s payment. However, it may make more sense to apply the additional money toward your loan’s principal balance or toward the loan with the highest interest rate.

Decide how you’d like the extra payments to be applied and see if you can specify that on your lender’s website. If not, contact the lender and ask them how to ensure that any extra payments are applied correctly.

2. Make Biweekly Payments

Most people only pay their student loans once a month. But if you pay your student loans every two weeks, you’ll end up making an extra payment over the course of the year.

Here’s how it works: Say you divide your monthly student loan payment by two and pay that amount every two weeks. If you make a half-payment every two weeks, you’ll end up making 26 payments throughout the year. This is equal to 13 full payments annually. If you pay once a month, you’ll make just 12 payments throughout the year.

By making 13 payments each year instead of 12, you could save on interest costs and pay off your loan ahead of schedule. For example, say you have $20,000 of student loan debt at a 6% interest rate. If you pay biweekly on a 10-year loan term, you could save more than $650 in interest and pay off your debt a year early.

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3. Reconsider Your Repayment Plan

If you want to pay off your student loans faster, switching to a shorter repayment term can help you do that. However, shorter repayment terms will usually result in a higher monthly payment. Make sure you can afford the new amount before you switch.

Borrowers with federal loans have access to several types of repayment plans. Log on to your Federal Student Aid (FSA) account to see what plan you’re currently enrolled in. The shortest repayment term is the 10-year standard or graduated plan. If you’re not on either of those plans and aren’t working toward loan forgiveness, you can change your repayment timeline. The official FSA loan simulator can show you how your payments would change on each plan.

If you have private student loans, you’re typically locked into your payment plan when you finalize the loan. If your lender is not willing to adjust your repayment timeline, you may need to refinance your loans with a new lender. Most private lenders offer repayment terms between five and 20 years. Usually, shorter repayment terms will have lower interest rates than longer terms. Make sure to choose a repayment term with a monthly payment that you can comfortably afford.

4. Search for Found Money

The concept of “found money” refers to cash that is legally yours but hasn’t been claimed. You might be eligible for unclaimed money from old bank accounts, government agencies, insurance policies or previous employers. You can search for found money through official government websites.

Make sure to look for found money in every state you’ve lived in, no matter how short the duration was. If you’re married, look for money for yourself and your partner. If you’ve inherited money from someone, you may also be eligible to claim any found money in their name.

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5. Use Windfalls

If becoming debt-free quickly is your main goal, consider diverting your windfalls toward your student loans. Windfalls include unexpected cash such as tax refunds, inheritances and work bonuses. Anytime you get a sum of money you weren’t counting on, that’s a windfall.

When you get a windfall, decide how much to allocate toward your loans. The amount you choose depends on your other goals or expenses. Cover immediate necessities first, or consider padding your emergency fund if necessary. Anything left over can go towards your student loans as an extra payment.

6. Research Refinancing Options

If you have student loans with a high interest rate, you may be able to pay them off faster by refinancing. Refinancing your student loans means switching to a new lender that offers a lower interest rate or better terms.

You can use a refinancing calculator to see how much refinancing could save you. Let’s say you owe $40,000 with a 10-year term and 7% interest rate. Your monthly payment is $465.

If you refinance to a 7-year term and a 4% interest rate, your new monthly payment will be about $545—an $80 increase. However, you’ll pay off your loans three years early and save a whopping $9,800 in interest.

There is a downside to refinancing, particularly if you have federal loans. When you refinance federal loans, they become private loans and lose all the benefits that come with federal loans—including income-driven repayment plans, longer deferment and forbearance periods and loan forgiveness programs.

Also, since the Covid-19 pandemic began, the government has suspended federal student loan payments and set interest rates at 0%. That same provision has not been extended to private loans.

If you have a mix of federal and private loans, you could refinance the private loans to a lower interest rate and keep the federal loans intact. This might give you the best of both worlds.