Many people dutifully make their student loan payments every month, only to feel like they’re progressing slowly — or not at all — toward debt freedom.
That could be due to the fact that when paying down student loans, much of your hard-earned money goes toward interest. To really make a dent in your balance, you’ll want to pay more than your required payment each month — but also to do so strategically, and perhaps in combination with other methods, like refinancing.
Here are 7 ways to pay off your student loans fast:
1. Understand how interest works
2. Talk to your loan servicer about your payments
3. Consider refinancing your student loans
4. Focus on earning more
5. Look into a federal direct consolidation loan
6. Set up automatic student loan payments
7. Make lump-sum payments whenever you have extra funds
How to shrink your student loan balance fast
The first step to paying down student debt quickly is to understand how student loan interest works.
Lenders collect interest from you in exchange for borrowing money. It’s calculated as a percentage of the amount borrowed, and on federal student loans, for instance, interest accrues daily.
To better understand how interest works, here’s an example. Let’s say you have a $50,000 federal student loan with an APR of 7%.
To find out how much interest accrues per day, use this formula:
(Interest rate) x (current principal balance) ÷ (number of days in the year) = daily interest
Here’s how the example looks using the formula above:
(.07) x ($50,000) ÷ (365) = $9.59
This shows you are being charged close to $10 per day just in interest. In a 30-day month, with this example, you’ll pay $287.70 in interest. That means if you make a monthly payment of $500, only $212.30 is going toward the principal.
Private loans may calculate interest differently. Your private loans may also come with variable interest rates, which can change over time, rather than a fixed rate.
Ultimately, it’s important to look at your repayment history to see exactly how much the lender applies to interest and how much it applies to the principal balance.
Make sure you also understand how your loan servicer distributes your payments. For example, if you make an extra payment and have multiple loans managed by the same company, the way that payment is applied depends on your loan servicer. The company may put the extra toward the highest-interest loan, or it may apply it to a future monthly payment.
But if you want to get out of debt fast, paying off high-interest loans first is the best route.
For example, let’s say you have a federal undergraduate loan with a 4.53% interest rate and graduate loans with 6.08% and 7.08% interest rates.
Focus on paying off the 7.08% graduate loan first. That’s because it’s currently costing the most in interest per month.
If it’s not clear how to designate your loan payment to a specific loan on your servicer’s online portal, discuss your options with the company. Provide instructions in writing if necessary.
Student loan refinancing could help you cut down on interest, and making it easier to pay off loans faster, especially if you have private student loans. Here’s why:
- Private student lenders often charge higher interest rates than what you’d get with federal student loans.
- Your interest rate may be variable, meaning it can increase over time. Refinancing gives you the option to switch to a fixed rate.
- Refinancing federal loans turns them into a private loan, and you’ll no longer be able to take advantage of certain federal loan benefits. But your private lender may have limited deferment, forbearance, payment reduction or forgiveness programs, meaning you have less to lose by refinancing.
If you have both federal and private student loan balances, be sure to first assess whether you should refinance your federal student loans. Consider the following:
- Do you qualify for one of the several federal student loan forgiveness programs? If you refinance, you’ll lose your eligibility.
- Do you plan to use special federal repayment plans like income-based repayment? Few private lenders offer these options.
- Will you save money? Depending on the type of federal loan, you may already have a low, fixed interest rate.
To get started with refinancing, explore multiple lenders and find the best rate for you. Many companies give prospective borrowers the option to get an interest rate quote without submitting a full application, which can help you compare offers.
Use a refinancing calculator to calculate how much you could likely save, which can help you decide whether refinancing is a smart choice based on your circumstances.
Making additional payments toward your loans can be difficult if the majority of your discretionary income is already going toward them. But one way to pay down loans faster is to focus on earning more money.
Consider starting a side hustle, getting a part-time job or selling items you no longer use. Commit to putting any extra money you make toward debt.
Working extra might sound difficult now, but think of it as a temporary solution so you can make progress on your loans. Celebrate when you hit key milestones, like paying off individual loans or getting your balance down to a certain threshold, to keep yourself motivated. Use a prepayment calculator to see just how much time and money you can save by adding a little more to your payments each month.
If you have multiple federal student loans, look into combining them into a single direct consolidation loan. Consolidation can make your loans easier to manage, organize and repay by giving you one monthly payment from a single servicer.
Note, however, that consolidation may leave you with a longer repayment term, which could mean a lower monthly payment, but more interest charges overall. If you’d like to use it as a strategy to pay off loans fast, consolidate federal loans to streamline bills — then put extra money toward your payment each month to get rid of the balance.
In order to qualify for a direct consolidation loan, you must have at least one direct loan or Federal Family Education Loan (FFEL) that is in repayment, deferment or default status, or in its grace period. In-school loans are not eligible.
Setting up automatic student loan payments has multiple benefits that will help you pay down your balance faster. First, many lenders offer an interest rate reduction of 0.25% in exchange for having autopay in place. While a fraction of a percentage point may not sound like much, you will save money over time and a greater portion of your monthly payments will go toward paying off your principal.
Automatic payments will also help you ensure you pay your bill on time, every single month. That’s important for keeping your credit strong; payment history is the biggest contributor to your credit score, which helps determine whether you may qualify for loans or credit cards in the future.
There may be times when you have more money in your pocket than usual, like when you receive a tax refund or a year-end bonus. Consider applying at least some of that cash to your student loan balance.
As is true when making additional payments through other methods, this ensures that more money than usual will go toward your principal. Use a lump sum extra payment calculator to get a sense of just how big of a difference that larger-than-normal payment will make.
Having a student loan balance is no fun, especially when it feels like so much of your money is going toward interest. But with a plan of action, you can start to tackle your student loans and make progress.
Tara Mastroeni contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.28%3||Undergrad & Graduate|
|1.89% – 6.77%4||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.61%5||Undergrad & Graduate|
|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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.