Once the college graduation celebrations end and your cap and gown go back in the closet, you might feel like you can leave all your school woes behind. That is, until your first student loan payment is due.
But it is possible to pay off student loans early and free up your budget to cover other expenses and save for your future. Your options include refinancing your loans, making additional payments and using student loan repayment assistance programs. Here are several strategies to pay off student loans early.
How to pay off student loans early: 5 basic tips
Some borrowers take extreme measures to pay off student loans: They sell their homes, forgo all other financial goals or cut expenses drastically. While laser-like focus on a goal can yield results, there are also more practical tips for fast loan payoff that you can work into your daily life. Try these strategies:
1. Refinance to a lower interest rate
Interest makes your loans cost much more than they did the day you received them. It’s the reason you can feel like you’re not making any headway on your balance, regardless of how many payments you make.
That’s why lowering your interest rate as much as possible by refinancing your student loans can help you pay off your education debt faster. The lower your rate, the more money you can apply to that principal balance.
Start by making sure you’re eligible for refinancing, based on your credit and income, and then compare options across multiple lenders. If you qualify, you may receive offers with a variety of interest rates — variable rates, which can change over time, and fixed, which don’t — and a variety of repayment terms.
Let’s say you have $60,000 in student loans at a 7% interest rate and 10 years left to repay. When you’re approved to refinance on a 10-year repayment plan, but at a 4.9% interest rate, you could save more than $60 per month and more than $7,500 overall.
Use our Student Loan Refinancing Calculator to see how much you can save. If you choose a longer repayment term, you can lower your payments even more — but that will keep you in debt longer and reduce your interest savings. If your main goal is to pay off the debt faster, choose the shortest repayment term you can afford.
2. Make biweekly payments
If you use the tactic of making biweekly payments, you would make one extra payment per year and cutting the amount of time it takes to repay loans overall. Here’s how it works:
- Split your monthly payment in half.
- Pay that amount every other week.
- Make sure your first two payments occur before your next due date. That way, you avoid accidentally paying less than the amount due.
When you do this, you’ll end up making the equivalent of one full extra monthly payment per year. And that extra payment could save a lot more than you expected, since you’ll chip away at your balance faster.
Generally, when you pay extra towards your student loan payments, lenders put that payment towards any fees first, then interest and lastly your principal. But your loan servicer may apply your extra payments to future loan bills, known as putting your loans into “paid ahead” status. Speak to your servicer to make sure your extra payment is, in fact, going towards your principal balance, which will have the largest impact, and not covering future payments.
3. Utilize student loan repayment assistance programs, if you qualify
Depending on where you live, what you do for a living and whom you work for, you might be eligible for a Loan Repayment Assistance Program (LRAP).
LRAPs award you money each month that goes toward your loans. They can provide you relief on your payments if you qualify. If you utilize those plans and also put extra toward your loans, you can make significant progress on getting rid of your student debt.
If making your own extra payments interferes with the terms of your LRAP, consider saving that money in a separate bank account. Then, when the LRAP is finished, you can use the savings to make one giant bulk payment on your loans.
4. Use the debt avalanche method if you have more than one loan
If you have a variety of loans and interest rates, you can pay them off faster by employing specific debt payoff methods. There are two popular methods — the debt avalanche and the debt snowball. The debt avalanche method is typically the best option for speedy debt repayment. Here’s how it works:
- Rank your loans from highest interest rate to lowest.
- If you have extra money to apply to your loans each month, apply it to the loan with the highest interest rate, while continuing to make your monthly minimum payments on all your loans.
- Once you pay off one loan, add the amount you were paying on it to the minimum payment on your next highest-rate loan.
- Keep rolling these payments onto your next loan, never decreasing how much you pay each month on your loans until they’re all gone.
As for debt snowball method, it focuses on paying off your smallest balances first. This is certainly good for motivation, but it won’t always be as useful in paying your debt off faster.
5. Apply bonuses, birthday money and tax refunds to your loans
Another way to win the fight against high interest rates is to make large extra payments that go straight to your principal balance. And what better way to do that than with money that you didn’t realize you’d have in the first place?
If you don’t like the idea of allocating all your bonus money, birthday cash or tax refunds to student loans, split it up. Assign a percentage of the extra money to your student loans, and use the rest elsewhere.
Bonus: Extreme student loan debt repayment methods
There are also more dramatic student loan repayment methods to consider. Used occasionally or in short bursts, they might help you make a lot of progress.
Decrease your expenses as much as possible
Evaluate your expenses and identify ones you’re willing to get rid of. For example, you could save a significant amount by downgrading your home, apartment or car. You could cook more and eat out less. Even a short-term shopping ban can help. Once you’ve decided how to decrease your expenses, apply all the money saved to your student loans.
Apply all pay raises to your loans
When you get a pay raise, instead of using it to upgrade your lifestyle, calculate how much extra you’ll receive in your paycheck and plan to apply it toward your loans each month.
As a bonus, once your student loans are paid off, you’ll feel like you got a raise twice. That’s because you’ll get to use your pay raise for other expenses, and you’ll no longer have monthly loan payments to make.
Sell assets you don’t need
Look around. Do you own assets you could live without, such as a house with a mortgage when you could rent, or a car when you could use a bike? If you sell the assets and apply the money to your student loans, you can knock a ton of time off your repayment term.
But evaluate the long-term consequences — and the potential loss of wealth — to be sure this won’t cost you more money later. Examples of this could include paying more to reenter a suddenly hot real estate market or spending more on taxis than you did on car payments.
A less extreme approach could be to sell items you don’t need, such as clothes or furniture, and use that money to pay off loans. Every little bit counts.
Why you should pay off student loans early
Federal student loan interest rates are currently between 4.53 and 7.08%, depending on the type of loan, according to the Federal Student Aid office. Private student loan interest rates can vary, but they can reach 13.95%, according to FinAid.
That’s why paying off student loans early can be so beneficial. Interest charges can drastically increase your overall debt load by the time you’re finished with your original repayment plan.
Choose the payoff methods that match your lifestyle and that you’re sure you can follow through on, and you’ll be more likely to succeed.
Jacqueline DeMarco contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.18% – 6.07%5||Undergrad & Graduate|
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1 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 June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
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 May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 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 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% 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 June 15, 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 6/15/2020. 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.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). 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 0.19% effective June 10, 2020.