It’s easy to put off paying for your student loans, since some student loan repayment plans have repayment periods upward of 20, 25, and 30 years. However, if you don’t want to spend a few decades paying off your student loans, you can take steps right now to pay them off fast.
Key Takeaways
- The more you pay while you’re still in school, the less interest will get added to your principal balance after graduation.
- Some student loan lenders offer discounts just for activating autopay, allowing you to reduce how much you’ll pay in interest over the life of your student loans.
- For borrowers with private student loans (or a mix of federal and private student loans), refinancing student loans pays off your existing loans, leaving you with one payment for the new refinanced loan.
1. Pay While You’re in School
If you’re currently a student, every little bit you can pay now will help you in the long run. If you can afford to chip away at your loans while in school, then you’ll owe less when you graduate. You can even make payments during your six-month grace period. The more you pay before your loans capitalize, the less interest will get added to your principal balance after you leave school.
2. Pay More Than the Minimum
Based on the size of your loan, your repayment plan will have a minimum amount that must be paid each month to pay off that debt within the repayment period. Making the minimum payment is enough to keep you on track with your repayment plan, but nothing is stopping you from paying more than the required amount each month. If you can add even just a few more dollars to your minimum monthly payment, then you could begin to shave months off of your repayment period.
3. Make an Extra Payment
Whether you come into a work bonus or get a nice tax refund, you can use a lump sum of extra cash to pay down your student loan debt. You can pay toward your principal to focus on lowering the overall amount you owe.
4. Activate Autopay
There’s nothing quite like “set it and forget it.” Some student loan lenders, including federal loans, offer autopay discounts, so you could lower how much you’ll pay in interest over the life of your student loans as a benefit for staying on track with your repayment period.
5. Stick to the Standard Repayment Plan, If You Can
When you leave school, you’re automatically enrolled in the Standard Repayment Plan, which is set to help you pay off your loans in 10 years. This is the fastest repayment plan available, and you’ll pay the least in interest over your repayment period. Compare this to income-driven repayment (IDR) plans, which have longer repayment periods of either 20 or 25 years (depending on the plan).
Keep in mind that IDR plans are typically more cost effective than the Standard Repayment Plan. Borrowers who go on IDR plans are generally seeking cost-effective payments and/or Public Service Loan Forgiveness (PSLF) over paying off their loan quickly. Additionally, the monthly payments for IDR plans are typically set as a percentage of your discretionary income, whereas the Standard Repayment Plan is based on your outstanding loan balance divided by 10 years. As a result, each of the Standard Repayment Plan’s 120 payments is the same every month, whereas IDR plans can change annually based on family and income changes.
6. Tap into Employee Benefits
Some jobs and companies offer matching student loan repayment benefits. They’ll match your payments every month, up to a certain amount. Employers can offer employees up to $5,250 per year in tax-free student loan repayment benefits through 2025. Not every company offers student loan repayment matching, but you may want to ask your employer if they have any special benefits like this. It could help you pay off your loans much faster.
7. Start a Side Hustle
If you’re struggling to find extra funds to put toward paying down your student loans, consider turning a hobby into a source of additional income or use your extra time to get involved in a side hustle. You could deliver groceries, walk dogs, sell homemade creations online, etc. If your primary source of income is used to pay your other bills, then you can use your side-hustle money to chip away at your student loan debt.
8. Revise Your Budget
If you’ve made a budget that only has you making the minimum monthly payment, you will most likely take longer to pay off your debt. If you have the means, change your budget to focus on paying off your student loans faster. That might mean less money going toward other things, such as dining out, traveling, or shopping. Freeing up those funds means you can devote more money toward paying down your student loans.
9. Check Tax Deductions
The student loan interest deduction lets borrowers claim up to $2,500 in student loan interest payments from last year, depending on their modified adjusted gross income (MAGI). You don’t need to itemize deductions to claim this, and it’s available for federal and private student loans. You then put this tax deduction toward paying down your student debt even further. There might be other deductions and credits for which you’re eligible.
The student loan interest deduction is gradually reduced and eventually phased out for higher-income taxpayers. For 2023, the MAGI phaseout for single, head-of-household, or qualifying widow(er) filers begins at $75,000 and ends at $90,000. If you are married and filing jointly, the MAGI phaseout begins at $155,000 and ends at $185,000. You can’t claim the deduction if your MAGI is above the maximum limit.
10. Look into Refinancing
If you have private student loans or a mix of federal and private student loans, you may want to think about refinancing your student loans. Refinancing means you’ll take out a new, private loan that pays off your existing loans and then you’ll make one payment to your new refinanced loan. Make sure you can get a lower interest rate than what you’re paying now and craft your repayment plan around what you can reasonably afford.
Remember that you lose all federal benefits and protections when you refinance, such as PSLF eligibility and deferment and forbearance options. Only take this route if you don’t plan to use federal benefits.
What is the smartest way to pay student loans?
Perhaps the smartest way to pay off your student loans (as well as one of the fastest) is to pay more than your minimum payment. As you reduce the principal balance of your debt, the amount of interest that you’ll owe over the life of the loan also decreases.
How long do most people take to pay off student loans?
Despite the Standard Repayment Plan having a repayment period of 10 years, a 2013 study conducted by One Wisconsin Institute found that survey respondents reported taking 21 years on average to pay off their student loans.
Is there a downside to paying off student loans early?
There can be a downside to paying off your student loans early. If you pay off your student loans quickly, any loans you take later may come with a higher interest rate than they might normally. Lenders do this to offset the risk that you will also pay off the new loans faster than expected (thereby preventing them from making more money off of interest payments) by making you pay more interest up front.
The Bottom Line
Paying back your student loans might feel overwhelming, but there are a few different ways that you can pay them off sooner. Set clear goals, revise your budget, and take advantage of employer benefits and educational tax breaks.
The more you focus on paying off your student loans right now, the more money you’ll have for yourself once you do.
