Most student loan advice is tailored to borrowers who are struggling to cover their payments. And for good reason: it’s not always easy to find extra money in your budget for student loan payments when you’re just getting started.
But what if you actually have a sizeable income and the room in your budget to take care of your minimum student loan payments – and then some? Higher income earners can take advantage of extra money and learn how to pay off student loans fast.
Why make extra student loan payments?
If you’re in a situation where you have extra money you could allocate to your student loans, you first question might be “but why?”
After all, it’s tempting to use that cash for other financial goals, such as saving up for your first home or taking a vacation.
But here’s the thing: the longer you keep balances on your student loans, the more money they cost you in the long-run thanks to the interest.
You can pay off student loans fast and free up that monthly payment to put toward the discretionary spending that’s important to you. Plus, you can prevent paying thousands of dollars in extra interest by reducing the term length.
How to pay off student loans fast
The sooner your debt is gone, the sooner you’ll be able to use that monthly payment for things you want to spend it on. But what does it take to repay your loans ahead of schedule?
Don’t settle for making the minimum payment on those balances. If you haven’t already, set up a budget system and know your cash flow. You need to understand exactly how much money you bring in each month and how much you spend.
Break down your spending into a few different categories:
- Necessary, fixed expenses: These are costs like your rent or mortgage, health insurance, and other mandatory bills.
- Necessary, flexible expenses: These costs are related to living expenses, but you have more control over them and they can change from month to month. This includes purchases such as groceries and transportation.
- Discretionary expenses: This bucket is for everything else. If the above categories are your needs, discretionary expenses are your wants.
Because you’re earning a good income, you probably have cash left over each month even after you account for your “fun” spending. You can start with this amount if you want to pay off your student loans ahead of schedule.
Whatever you have left at the end of each month, take that sum and apply it to the principal balance of your student loans. Consider using a payoff method like the debt snowball or debt avalanche to target loans strategically.
Cut costs and pay down debt with more velocity
If you want to get really serious about getting rid of your student loans, you can start looking at your discretionary spending and ways to cut back. Then use that cash toward your student loan repayment instead.
This can be hard to do, especially if you’re used to spending that money on things you enjoy. But it’s amazing how much faster you can be debt-free if you commit to cutting back on your spending for just a little bit.
Check out this example to illustrate how increasing your monthly payment, or making extra payments each month, can knock out your debts even faster.
Say you have a student loan balance of $30,000 with a 6% interest rate and payment term of 20 years.
Your minimum payment would be about $214 per month. But here’s how changing your monthly payment impacts your debt-free date:
|Monthly Payment||Years of Repayment||Interest Saved|
So yes, it is tough to reduce your spending and put your hard-earned money toward debt repayment instead of things like nights out with friends or tropical vacations. But if you’re earning enough money, don’t settle for making the minimum payment.
Increasing the amount you put toward your student loan debt each month could allow you to get rid of all your loans in less than five years instead of 15 or more. Accelerating your repayment also means potentially saving tens of thousands of dollars in interest!
While these numbers are powerful, they’re still just examples. It makes much more of an impact when you can see your own personal situation in the data. So go ahead: plug in your information into the prepayment calculator below and see how changing your monthly payment saves you time and interest.
Then determine how much extra money you’ll put toward your student loans every month to be on the right road to debt freedom and financial success!
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|