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Should I pay off my student loans early?

Young student studies in a college library
Jacob Lund/Shutterstock
Young student studies in a college library
Jacob Lund/Shutterstock
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If you’ve been in debt for years and you have disposable income, paying off your student loans early could seem like a no-brainer. However, student loans generally have lower interest rates than other kinds of debt, and paying them off early could keep you from other financial goals, like buying a home. Before you decide to pay off your student loans, think about your entire financial picture and goals. Paying off student loans early could be the right option for some people, but it does come with some downsides.

Key takeaways

  • Paying off student loans early should come second to having an emergency fund and saving for retirement.
  • You lose the opportunity to get some of your balance forgiven through a student loan forgiveness program if you pay off your loans early.
  • People with private student loans or without other debt can consider paying off student loans early, but federal student loan borrowers will likely want to hold off for now.
  • In some cases, refinancing student loans can help borrowers pay off their student loans early without paying more each month.

Should I pay off my student loans early?

Whether or not you should pay off your student loans early depends a lot on your specific circumstances. Peter Dunn, CEO of Your Money Line, says that although paying your loans early is a big achievement,  you need to make sure that it won’t be at the expense of other foundational financial goals.

“Establish an emergency fund, contribute to your employer’s retirement plan at least up to the match and prioritize any other high-interest debt before attacking your student loans,” Dunn says. “Once you’re on track with your core financial habits and obligations, then start looking at systematically paying down your student loans.”

Pay off your student loans early if:

  • You’re saving a reasonable amount for retirement already. If you’re already saving money for retirement and you’re on track to reach your long-term goals, it can make sense to funnel some extra cash toward your student loans.
  • Your income is high enough to fund other goals. If your income is high enough that you can save for your other financial goals and you still have cash to spare, it can make sense to wipe out your student loans faster than normal.
  • You have paid off all high-interest debt. If you are free of credit card debt and other high-interest debts, that’s another sign that it could make sense to pay off your student loans early.
  • You have a fully funded emergency fund. You should pay off student loans early only if you have at least three to six months of expenses in a high-yield savings account. However, don’t use your emergency fund to pay for those student loans — keep it intact and available for true emergencies.

Don’t pay off your student loans early if:

  • You’re not saving for retirement. If you’re not saving for retirement yet, you should take care of this part of your finances first. At the very least, you should contribute to your workplace retirement account up to any amount your employer will match. If you’re self-employed, contributing to an account like a SEP IRA or a solo 401(k) can help you prepare for retirement while lowering your taxable income.
  • You have high-interest debt. If you have other kinds of debt, you should prioritize paying down whatever balances carry the highest interest rates. For instance, the average credit card interest rate is well over 17 percent, which is much higher than most student loans charge.
  • You don’t have any savings. If you don’t have any cash for emergencies or other goals, put any extra money there first.
  • You may want to utilize federal programs. If you have federal student loans and are considering signing up for an income-driven repayment plan or Public Service Loan Forgiveness, hold off on putting extra money toward your loans. Both of these programs give you the opportunity to have some of your balance forgiven.

Pros and cons of paying off student loans early

Paying off student loans early has its upsides and downsides. Here are some of the benefits and drawbacks of paying back your loan early.

Pros

  • Pay less over the life of the loan: Because your student loan, like most other debt, accrues interest when you carry a balance, it’s cheaper if you pay off the loan earlier. It gives the debt less time to accumulate interest, which means that you’ll pay less money in the long run.
  • Get a head start on other financial goals: With one less monthly payment to worry about, you’ll be able to use the funds you would apply to your student loans for other purposes, like saving for a house or retirement, paying off a mortgage or taking a vacation.
  • Improve debt-to-income ratio: Getting rid of a significant monthly payment could improve your debt-to-income ratio, a measurement that most lenders evaluate when determining your qualifications for credit. With an improved debt-to-income ratio, you may be eligible for better interest rates on credit cards, mortgages and more.

Cons

  • Higher monthly payments: Especially if you’re early in your career or not making much money, you may struggle to pay off your student loans early. Paying off your loans early means making additional payments or larger payments, so you should only increase your student loan payments if you can afford to do so without making undue sacrifices.
  • Draws focus from other financial goals: There are certain financial goals you shouldn’t wait on, and focusing on your student loans could take away from them. If you don’t have an emergency fund yet, for instance, send any extra payments there first.
  • No opportunities for student loan forgiveness: If you’re eligible to have your student loans forgiven after a certain amount of time based on your career, it doesn’t make sense to repay your loans early. You’re better off making your required payments until the debt is forgiven.

How to pay off student loans quickly

If you’ve decided that paying off your student loans early is the best choice for you, here are some of the best ways to go about doing it:

  • Pay more than the minimum payment: Paying more than the minimum on your student loans can help you lower the principal of your balance and pay off your loans faster. If you’re curious how much time you could save by making a larger payment, a student loan calculator can help.
  • Pick up a side hustle: Look for ways you can earn some extra cash to throw toward your student loans. For example, pick up babysitting gigs, drive for Uber or Lyft, sell old clothes online or donate plasma.
  • Put down a lump-sum payment: If you have come into some money, perhaps through tax returns or a cash gift, consider putting it toward your student loan repayment.
  • Pay biweekly instead of monthly: By making biweekly payments on your student loans, you’ll wind up making 26 half-payments within a year. This means that you’ll wind up making 13 full payments on your loans each year instead of 12.
  • Refinance for a lower rate: Refinancing can help you pay off your loan faster if you can find a lower rate. By cutting down on interest charges, you may be able to more easily chip away at the principal balance on your loan.

Next steps

Paying off student loans early can feel empowering, but before you decide, make sure that it’s the right decision for your circumstances. After all, student loans typically have relatively low interest rates, and it’s usually best to focus on paying back your highest-interest debts first.

We also don’t recommend sacrificing retirement or emergency savings for the sake of getting out of student loan debt. However, if you already have a solid financial plan in place, ditching your student loans early can make a lot of sense.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Student loans editor