There’s no penalty for repaying federal or private student loans faster than the repayment schedule. Paying off student loan debts faster will save you money in interest payments. The sooner you’re out of student loan debt, the sooner you’ll be able to achieve other financial goals.
Written by Attorney Jenni Klock Morel.
Updated May 15, 2023
Student debt in the U.S. has increased by more than 100% in the past decade. Outstanding student loan debt hits a new record high every year. If you’re currently enrolled, you’ve graduated, or you’ve left higher ed in debt due to student loans, you’re not alone. Most college students take out federal student loans. Many borrow from private lenders, too. The good news is that there’s no penalty for paying off student loan debts faster than the repayment term.
How Can I Pay My Student Loans Faster?
To pay off student loans faster than the repayment term, you can use a mix of strategies. Repaying loans quickly starts with the borrowing choices students make while still in school.
Make Interest Payments
Interest accrues on most student loans while you’re in school. Pay the interest while you’re in school, if you can.
If you don’t make student loan interest payments while in school:
Your student loan balance will be higher. This is because the accrued interest you don’t pay will be added to the loan’s principal balance.
Your monthly payments will be higher. This is because of the higher loan balance.
You’ll pay thousands more in student loan repayments overall.
If you can, also make interest payments during the grace period and any time your loans are in deferment or forbearance. To pay your student loans faster, make interest payments anytime you are not making regular monthly payments toward the loan balance itself.
Set Up Automatic Payments
Setting up an auto-debit for your student loans can reduce your interest rate, which lowers your monthly payment and reduces the total amount that you pay over time.
Set up autopay for your Federal Direct loans to get a .25% interest rate reduction. Many private student loan lenders also offer a lower interest rate when you set up automatic payments.
You can save hundreds of dollars when you set your payments to auto-draft from your bank account. As long as enough money is in your account, your student loan monthly payments will always be made on time without you having to think about it.
Put Extra Money Toward Student Loan Payments
The quickest route to repayment is to use extra money you have to pay down your student loan balance.
Where do student loan borrowers get extra money to put toward repaying their loans? After paying your bills, you might have extra money from your wages. There are other sources of extra money to consider, too. For example, you can put your tax refund toward repaying student loan debt.
You can also start a side hustle to pay off student loans faster. There are options like driving for a ride share service or starting an Etsy store. Get creative to earn side hustle income. Find freelance work online. Consider renting out a spare room, or even a parking spot, or your car. You can make money selling clothing and other items online. You can put extra money from any source toward faster repayment of student loans.
Pay More than the Minimum Each Month
Set up additional payments so that you pay more than your minimum monthly payment. Even paying a small amount, like $20.00 extra per month, will make a big difference in the total amount you’ll be required to pay back over the life of the loan.
Why is paying even a small amount extra so effective? Any amount higher than your minimum monthly payment goes straight to paying down the loan principal. Lowering the total amount you owe decreases the amount you’ll pay in interest.
For example, assume you have a student loan balance of $20,000, at an interest rate of 6.0%, and a repayment term of 10 years.
If you pay your amount due every month:
You’ll make 120 payments of $222.04.
You’ll pay off your student loan in 10 years and you’ll pay a total of $26,644.29.
If you pay an extra $20.00 a month:
You’ll make 107 payments of $242.04.
You’ll pay off your student loan in 8 years and 11 months, and you’ll pay a total of $25,865.67.
In this scenario, paying an extra $20.00 a month would get you out of debt 13 months sooner and save you $779.25. Paying more than your minimum monthly payment each month does make a difference!
Make Bi-Weekly Payments
Another strategy to pay off student loans faster is to make bi-weekly payments. Instead of making one monthly payment, pay half your payment every two weeks. You’ll make 26 half-payments instead of 12 full payments. The result is that you’ll make one extra payment each year. This approach will shorten your repayment term and save you money in interest costs.
Stick to the Standard Repayment Plan
The Standard Repayment Plan for federal student loans is 10 years. Other repayment plans for federal loans can stretch the loan term to 20, 25, or 30 years. It’s important to explore other repayment plans available to you if you can’t make your monthly payment under the Standard Repayment Plan or if you might be eligible for one of the loan forgiveness programs. Otherwise, your best bet to repay your student loans as quickly as possible is to stick to the Standard Repayment Plan.
Refinancing Student Loans
Student loan refinancing involves taking out a new loan that is then used to pay off existing student loans. If you have a good credit history and a high credit score, you could secure an interest rate lower than your current student loans. After refinancing, you’d make one monthly payment toward the new loan.
Some borrowers can pay off student loans faster by refinancing—but not always. Some refinanced loans extend the repayment term. Your monthly payment and interest rate might be lower, but your student loan repayment would take longer and cost you more. Make sure you don’t extend your loan term if your goal is to pay off student loan debt faster. If you do get a longer loan term, make extra payments so that you pay it off early. Also, if you can’t get a better interest rate than the one you have now, it may not make sense to refinance at this time.
Private Student Loan Refinancing
Private student loan repayment can be an even harder task than paying off federal student loans because of higher interest rates and fewer repayment plan options. This can make the opportunity to refinance especially powerful.
Private student loans and federal student loans can be refinanced through a private lender. Refinancing is different from student loan consolidation. Federal student loans can be consolidated to pay all loans in one simplified monthly payment.
Federal Student Loan Refinancing
Refinancing federal student loans can help you repay debt faster and save you money, but you’ll lose protections that are offered in your federal student loan terms.
The government regulates federal student loans and offers repayment options that you’re not going to get from a private lender. The federal student loan benefits and protections you’ll lose by refinancing include:
Deferment or forbearance assistance if you can’t make your monthly payments.
Income-driven repayment plans, which help borrowers lower monthly payments based on income and family size.
Graduated Repayment Plan and the Extended Repayment Plan, which help borrowers lower monthly payments.
Student loan forgiveness programs, like public service loan forgiveness.
Any grace period remaining before loan repayment begins.
After your federal student loans are refinanced by a private lender, you won’t have access to any of these benefits and protections if you need them later. It’s not necessarily a bad idea to refinance, it’s just not the right choice for everyone. Refinancing isn’t good for borrowers whose jobs are at risk or who qualify for loan forgiveness. It can be great for borrowers with secure jobs.
Is It Smart to Pay Off Student Loans Quickly?
It might be smart for you to pay off your student loans quickly. It’s odd to think that paying off a debt quickly wouldn’t be a smart move. Is there a better way to use the extra money you’re planning to put toward paying off student loans?
Before sending more than your minimum payments it’s wise to:
Have a savings account with enough emergency savings to cover at least 3 to 6 months of living expenses.
Max out retirement savings by paying the max you can into employer-sponsored accounts, like your 401(k).
Pay off debt with higher interest rates first, like credit card debt or personal loans.
After the above financial goals are met, it’s smart to put at least some of your extra money into paying off your student loans faster than the repayment term. As previously explained,an extra monthly payment of just $20.00 speeds up your repayment and will save you money over time.
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What Is the Smartest Way to Pay Student Loans?
Setting up autopay is the smartest way to make your student loan payments. For many student loans, setting up automated payments will decrease the interest rate, which will save you money. Auto-debit payments also help make sure your monthly payments are paid on time.
Making extra payments on top of your regular monthly payment is also a powerful way to pay off your student loans faster. There’s one thing you need to do before you start making more than the minimum payments. Call your loan servicer and make sure that your extra payments will be applied to the current loan balance, not to next month’s payment. Extra payments will only help you pay off the loan faster when they’re applied to the loan balance.
How Long Should It Take to Pay Off Student Loans?
Most student loan terms are set at a 10 year repayment plan. It’s ideal to pay off your loans in 10 years or less.
Many federal repayment plan options extend the loan term well beyond the 10 year Standard Repayment Plan to 20, 25, or 30 years. The Department of Education lists the repayment period for $20,000–$40,000 total loan debt to be 20 years.
Don’t fret if you can’t pay off your student loan debt in 10 years or less. Do the best you can and try to make the wisest choices to meet your financial goals. Incorporate some of the strategies above to accelerate how quickly you can pay off your loans.
There’s no penalty for repaying federal or private student loans faster than the repayment schedule. Paying off student loan debts faster will save you money in interest payments. The sooner you’re out of student loan debt, the sooner you’ll be able to achieve other financial goals. It’s always a good thing to pay off debt, but putting all of your extra money toward student loans isn’t necessarily the best choice. Before making payments in addition to your monthly minimum payment, it’s best to have an emergency fund, be maxing out contributions to retirement accounts, and pay higher interest debts, like credit cards, first. It’s a financial milestone to pay off your student loans. Committing to paying off student loans fast can put this milestone well within your reach.