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While some experts say that you can’t put a price on a good education, many of today’s graduates are stuck paying off student loans while trying to save for a house, pay their bills and start a family. While the standard repayment term for federal loans is 10 years, the repayment process can take up to 30 years with some options.
If you’re feeling overwhelmed, try these ways to pay off your student loans quickly.
1. Make additional payments
If you can afford it, make larger payments to cut the principal more quickly and reduce the total payoff time. By reducing the principal balance, you’re minimizing the duration of the loan period and the interest accrued.
For example, a $25,000 student loan with a 6.8 percent interest rate and a 10-year repayment period would cost $288 a month. Using a student loan calculator, you can see that paying $400 a month instead of $288 enables the borrower to repay the loan in less than seven years.
Another strategy is to pay biweekly rather than monthly.
“Just be sure to advise your loan servicer to apply your extra payment to your principal balance, rather than placing your account in a ‘paid ahead’ status,” says Jessica Ferastoaru, student loan counselor at Take Charge America. “This will allow you to pay down your principal balance more quickly and save money on interest.”
If you have multiple loans, there are several strategies for choosing which to pay extra toward. To save the most money, starting with the loan with the highest interest rate is usually best.
2. Set up automatic payments
It may be tempting to apply any money you have left over at the end of the month to your student loans. But if your budget is tight and you don’t tend to have extra at the end of the month, doing so could mean slowing your payment pace.
If you’re unsure how much more you can devote to your student loans every month, take a close look at your budget to determine the amount you can afford.
Then, set up automatic payments for the beginning of the month. That way, you won’t accidentally spend that money. Take care when setting your payment amount to avoid spreading your budget too thin.
3. Limit your debt with a part-time job in college
Getting a part-time job while attending college is one way to keep college debt in check, because you can use those earnings to reduce how much you borrow in the first place and make your repayment plan that much easier. You can earn up to $7,040 a year without affecting your eligibility for need-based financial aid.
Check your school’s resources or career center to see if they’re hiring for any on-campus jobs. On-campus jobs tend to be more understanding of unusual or busy class schedules. Online jobs are also more abundant than ever, giving you even more opportunties that work with your schedule and your skillset. Between school years, you can take full-time summer jobs to earn even more.
4. Stick to a budget
Planning and understanding your monthly cash flow can make it easier to know where you can cut back and reallocate those funds toward your student loans.
“If you’re trying to pay down your student loans faster, one of the best ways to reach your goal is to develop a budget,” says Ferastoaru. “If you’re able to meet a savings goal each month by sticking to a budget, you can use that money to pay down your student loans.”
Do an assessment of your spending habits and your ability to keep a budget. If you find it hard to maintain a budget, use a student budget calculator to help you get on track and stay there.
5. Consider refinancing
Refinancing your student loans could help you pay down your student loans faster by helping you obtain a lower interest rate, a shorter repayment period or both.
Note that this option may not be available right after you graduate unless you’ve managed to build a solid credit history or you have a creditworthy co-signer. If not, it can take some time to establish your credit history and meet the eligiblity criteria for refinance lenders. Many lenders also require you to have stable income or employment history to qualify.
If you refinance federal student loans, you’ll lose access to certain benefits, including student loan forgiveness programs and income-driven repayment plans.
Before refinancing, shop around with a few lenders to see which offers you the best rates. You can also use a student loan refinance calculator to understand the numbers and whether it’s the right move.
6. Apply for loan forgiveness
Forgiveness programs can eliminate all or part of your student loan debt, but each program has unique requirements and strict approval standards.
- Biden forgiveness plan: In August, President Biden announced a plan to forgive up to $20,000 in federal loans for eligible borrowers. Forgiveness is limited to those with incomes of $125,000 or less (or $250,000 if you’re married and file a joint tax return). You can get more information about the plan through the Federal Student Aid website and sign up for email updates to find out when the application is ready.
- Public Service Loan Forgiveness: To be eligible for the PSLF program, you must be employed full time in a public service position by a government or nonprofit organization and make 120 qualifying payments under an income-driven repayment plan. Getting approved for the program is difficult, so read through the details carefully to stay on track.
- Teacher Loan Forgiveness: To qualify for the Teacher Loan Forgiveness program, you must have an eligible loan under the direct loan program or FFEL program and teach full time for five consecutive years in a low-income school or educational service agency. At least one of those years must be after the 1997-98 academic year. The program forgives up to $5,000 or $17,500, depending on your specialty.
- Income-driven repayment forgiveness: It’s also possible to have a portion of your student loans forgiven if you’re on an income-driven repayment plan. Once the 20- or 25-year repayment term ends with these programs, any remaining balance is forgiven. If you hit the end of your repayment period before 2026, the forgiven amount is not taxable.
7. Lower your interest rate through discounts
Most lenders will offer a 0.25 percent discount if you set up automatic payments on your loan, and some may go as high as 0.50 percent with relationship discounts.
In addition, private lenders may offer interest rate discounts if you meet certain criteria, like making a certain number of on-time payments or taking out another loan with the same company. If you have private student loans, contact your lender and ask about interest rate reductions and discounts.
8. Take advantage of tax deductions
The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income. The deduction is available for both federal and private student loans.
You can claim this tax deduction if you’re legally required to pay interest on a qualified student loan and your filing status is not married filing separately. This program also has adjusted gross income limits, which are set annually. You do not need to itemize to claim this deduction.
It can also be a good idea to take some or all of your tax refund every year and put it toward your student loans.
“It’s a good idea to speak with a tax advisor to make sure you’re taking advantage of any relevant tax benefits related to your education,” says Ferastoaru.
9. Ask your employer about repayment assistance
Many employers have begun offering student loan repayment assistance or tuition reimbursement. Some employers, including Starbucks and Walmart, even offer free college for workers who sign up for degree programs within a chosen network of courses and schools.
Employers can contribute up to $5,250 annually toward an employee’s college tuition or student loan repayment assistance through 2025. This benefit is not taxable income for the employee, which is a major boon for workers who are pursuing higher education while continuing to work.
Employers can deduct the expense, too — so everyone benefits. Check your employee manual or speak with your HR department to see what tuition assistance or loan repayment options are available at your company.
How long should it take to pay off student loans?
Your chosen repayment plan greatly influences how long it will take you to eliminate student loan debt. While the standard student loan repayment timeline is 10 years, you can also opt for extended and graduated repayment plans for federal loans that last for 25 to 30 years.
Income-driven repayment plans let you pay between 10 and 20 percent of your discretionary income for 20 to 25 years. Then, your remaining balance is forgiven.
If you have private student loans, you can usually select a repayment timeline that works for you, ranging from five years all the way up to 20 years. If you need more time, you can refinance your private loans.
Is it smart to pay off student loans early?
Whether or not you should pay off student loans early depends on your situation. If you can afford to pay more than the minimum payment without sacrificing other financial goals, you probably should.
Because student loans come with low fixed interest rates and fixed monthly payments, you may not be in a hurry to pay them off. If you have other high-interest debt like credit cards or personal loans, focus on those first.
Whatever you decide, it’s crucial to know what you may be gaining — and what you may be giving up. Here are some of the benefits and downsides to repaying your student loans ahead of schedule.
Pros of paying off student loans early
- Reach other financial goals sooner. By paying off your student loans quickly, you’ll be able to put more of your focus into things like retirement, homeownership and savings.
- Improve your debt-to-income ratio. Getting rid of a loan lowers the amount of debt you have relative to your income, which will help you qualify for other funding, like a mortgage or credit cards.
- Pay less interest over the life of the loan. The less time you spend repaying your loans, the less interest you pay on them. By paying off your loans early, you can easily reduce the overall cost of your loans by hundreds of dollars.
Cons of paying off student loans early
- Could lose eligibility for loan forgiveness. If you’re working toward loan forgiveness through an income-driven repayment plan or Public Service Loan Forgiveness, making extra payments or paying your loan in full will reduce the amount you will see forgiven.
- May miss out on stock market gains. Paying extra on your student loans instead of investing for retirement and other long-term goals could cause you to miss out on gains. In some scenarios, you may be able to make more money through investing than what you would save in interest by paying off loans early. That said, investing comes with risks.
- Draws focus from other forms of debt. Paying off student loans early may not be worth it if you have other high-interest debts. If you have a credit card balance with a 16 percent interest rate, for instance, it makes more sense to put extra payments toward that account rather than toward a student loan with 5 percent interest.
The bottom line
Student loan debt can be a significant financial burden, but there are steps you can take to eliminate yours more quickly, and you don’t need a high salary to do it. Some are widely available, like automatic payments, while others require a particular job or financial situation.
As you consider your options, determine the best approach for your finances and goals.