Should You Pay Off Your Student Loans Early? 4 Factors to Help You Decide

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If you have student debt and are doing OK financially, you might ask yourself: Should I pay off my student loans early?

The answer really depends on your own situation. Some people treat student loans like the plague and zealously believe they should get rid of them as soon as possible. Others are more laid back about the whole thing and feel that student loan debt is the new norm.

So, what should you do? Although it’s a personal decision, there are several important factors worth considering before you decide whether paying off student loans early is right for you.

How to decide if you should pay off your student loans early

Let’s first look at the reasons it might be best to pay off student loans as soon as possible.

For one thing, not only would you be able to ditch those pesky monthly payments, but you also wouldn’t have to stress about what would happen to your debt if a sudden financial emergency came up. And just think about all that interest you could save each month without student loans.

But does it make sense to pay off student loans early in all cases? Not necessarily. For instance, you might have more pressing issues you need that cash for, rather than applying extra payments to your student debt.

Here are four things to think about as you decide what priority to give your student loan repayment.

1. Look at the big picture

Student loans are just one part of your financial situation. While it may seem like it makes sense to pay them off early, there are other things in your life that might take precedence.

For example, do you have an emergency fund? Even a basic emergency fund of $1,000 can be helpful. You can’t plan for every contingency, and in life’s full scope of irony, emergencies typically hit at the most inopportune time.

It’s also important to consider any other debt you have, aside from student loans. If you have high-interest credit card debt, for example, it makes sense to focus on paying that down first.

At the same time, look closely at what repaying student loans early might do to your quality of life. Most of us can sacrifice a bit to pay off debt, but it’s probably not worth bending over backward to pay back your student loans early if it means you must struggle to pay other bills and eat, or have to forgo basic necessities like health insurance.

2. Examine your goals

Knocking off your student loans early means that you will inevitably be paying more than the minimum toward your debt. This will divert money from other areas of your financial life, but that’s fine if your goal is to become debt-free as soon as possible.

But what if you want to quit your job and start your own business? What if you want to travel? Or buy a house? Maybe you’re starting to plan for a wedding or having a child. All these factors should inform your decision.

Money is a tool that helps us live the life we want. If your goal is to be debt-free as soon as possible, it may make sense to throw all your extra money toward debt. But if you have short- and long-term goals on the horizon that are extremely important to you, it’s critical to focus on those as well.

In fact, if you don’t attend to those other objectives, you’re likely to become less motivated about paying off debt, and you’ll lose steam fast.

It’s all about balance and coming up with percentages for your various goals. For example, you could put 25% of your discretionary income toward debt, while saving 10% for a wedding.

At the other end of the spectrum, you could go on an income-driven repayment plan to lower your monthly payments sharply, slowing the progress on your student debt in order to save for other life goals.

3. Compare interest rates

After you look at your personal and financial goals, it’s time to compare interest rates. Your interest rates can help you decide whether paying off student loans early is right for you — or whether you should jump-start your savings goals or begin to invest.

If you have an interest rate well over 5%, for example, you may want to make paying off debt a high priority. Hefty interest rates can tack on a lot of extra money to your balance, making the repayment period even longer.

But if you have a much lower interest rate, you may be able to get better returns on your money by investing. Use this student loan payoff calculator to help crunch the numbers as you consider other uses for your money.

While it’s hard to predict what kind of return you can expect from an investment, comparing estimates can be a worthwhile exercise as you decide on your financial strategy.

4. Evaluate your repayment plan

In most cases, paying off student loans early makes sense if you can afford it, especially since you’ll save money on interest.

But under certain repayment plans, it may not be so beneficial. For example, if you are hoping to get your loan balance wiped away under the Public Service Loan Forgiveness program, there’s not much reason to pay the debt off early.

Conversely, if you’re on an Extended Repayment plan running 25 years, it could make more sense to pay off your loans early if you can. This is because of the massive amount of interest that can accumulate over that time.

What if you want to pay off your student loans early?

If you decide that, yes, you should pay off your student loans early, then you’ll want to have a solid plan of attack. Here are a few ideas to best jump-start the process:

  • Start repayment during the grace period. You usually have six months after you graduate to start making payments on your student loans. But if you’re school now (or just recently finished) and can afford to pay something — even a little — toward your loans, you can get ahead of the game and often avoid some interest.
  • Pay more if you can. If you can make larger payments each month, then obviously, you can get your debt down faster. Just make sure that your lender applies those payments directly to the principal.
  • Get a side job. If you have the time, a side hustle can help bring in some extra cash that you can use toward your student loan balance. Working a few extra hours at your current job or on a weekend now and then can go a long way toward helping your finances.
  • Refinance your student loan. If you (or a cosigner) can qualify for refinancing, you could potentially score a lower interest rate and save a bundle, as well as consolidate your student debt into a single loan to make repayment simpler.
  • Seek out forgiveness and repayment assistance. There’s a wide variety of forgiveness and loan repayment assistance programs out there, and some employers even offer their own student loan repayment benefits.

Bottom line

Paying student loans off early is a personal decision and one that should reflect your goals and values. Consider some of the points above as you look over your options.

Whether you decide to pay off debt as quickly as possible or take the longer road while you focus on other things, having a plan and sticking to it can help you reach your goals.

Carissa Chesanek contributed to this report.

Interested in refinancing student loans?

Here are the top 7 lenders of 2019!
LenderVariable APREligible Degrees 
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1 Important Disclosures for Earnest.

Earnest Disclosures

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 3.45% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.81% APR (with Auto Pay) to 6.49% 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 November 6, 2019, 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 11/06/2019. 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 hello@earnest.com, or call 888-601-2801 for more information on our student 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 SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.46% APR (with AutoPay) to 7.61% APR (without AutoPay). Variable rates currently from 2.31% APR (with AutoPay) to 7.61% (without AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.31% APR assumes current 1 month LIBOR rate of 2.31% plus 0.75% margin minus 0.25% for AutoPay. If approved for a loan, the fixed or variable interest rate offered will depend on your credit history and the term of the loan and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

3 Important Disclosures for Laurel Road.

Laurel Road Disclosures

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. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
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.

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.

FEE INFORMATION

There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.

LOAN AMOUNT

For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
For eligible Associates degrees in the healthcare field (see Eligibility & Eligible Loans section below), Lender will refinance up to $50,000 in loans for non-ParentPlus refinance loans. Note, parents who are refinancing loans taken out on behalf of a child who has obtained an associates degrees in an eligible healthcare field are not subject to the $50,000 loan maximum, refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for more information about refinancing ParentPlus loans.

ELIGIBILITY & ELIGIBLE LOANS

Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).

Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.

All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.

For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.

INTEREST RATES

The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.

DISBURSEMENT OPTIONS

The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.

POSTPONING OR REDUCING PAYMENTS

After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.

We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.

We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.

If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of November 8, 2019 and is subject to change.


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.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

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 1.9299999999999997% effective October 10, 2019.


6 Important Disclosures for LendKey.

LendKey Disclosures

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.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 11/07/2019 student loan refinancing rates range from 1.90% to 8.65% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.

 


7 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 09/23/2019. Variable interest rates may increase after consummation.

1.81% – 6.49%1Undergrad
& Graduate

Visit Earnest

2.31% – 7.36%2Undergrad
& Graduate

Visit SoFi

1.99% – 6.65%3Undergrad
& Graduate

Visit Laurel Road

2.43% – 7.60%4Undergrad
& Graduate

Visit Splash

2.02% – 6.30%5Undergrad
& Graduate

Visit CommonBond

1.90% – 8.65%6Undergrad
& Graduate

Visit Lendkey

2.74% – 6.24%7Undergrad
& Graduate

Visit College Ave

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Published in Big Money Decisions, Budgeting & Expenses, Credit & Debt, Make More Money, Student Loan Repayment

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