Ready to put your student debt behind you? These tips may help you minimize snowballing interest and pay your loans off as soon as possible.
- Small adjustments, such as setting up automatic payments or paying biweekly, may add up over time.
- Making more than the minimum required payment and reducing your principal may help you pay off your student loans faster and save money on interest.
- Communicate with your loan service provider when making extra payments or if you're in danger of missing payments.
- Carefully review the pros and cons of refinancing your student loans before making a decision.
Enroll in Automatic Payments
Make sure you never miss a payment - and make your life easier - by setting up automatic payments from your bank account. Bonus: Some loan servicers offer a discount on your interest rate when you autopay.
Make Biweekly Payments
Some lenders may offer the option to make payments on a bi-weekly basis rather than once a month. If you pay half of your monthly payment every two weeks, you'll end up making an additional payment each year. Depending on your loan terms, that could mean paying it off a year early and saving on interest to boot!
Pay More Than the Monthly Minimum Payment
A good way to pay off student loans faster is to pay more than the minimum payment due each month, but extra payments require extra money. Find room in your budget by carefully tracking your current spending. Look for things you can cut out or reduce, like cancelling subscriptions you don't really use or cooking at home instead of dining out. To make even more progress, consider taking on a part-time job or starting a side hustle.
If you receive any windfalls, like a tax refund, work bonus, or even some birthday money from Grandma, consider using at least part of it to pay down your student loan.
Start Making Payments Early
If you have a private student loan or an unsubsidized federal loan, interest starts building while you’re still in school. And here’s the part most people don’t realize: when you enter repayment, any unpaid interest gets added to your original loan balance.
That means future interest is calculated on a bigger number, which can increase your total cost over time.
If you’re able to make small payments while you’re in school – even just covering the interest – you could prevent that balance from growing. Paying a little now may help you owe less later.
Tell Servicers How to Apply Extra Payments
Extra payments aren't always automatically applied to the principal, but most loan servicers allow you to provide standing instructions for how to apply overpayments. If possible, set up your account so any overpayments are automatically applied to the principal instead of advancing the due date. If you have multiple student loans, also instruct the provider to apply overpayments to the loan with the highest interest rate first.
If standard instructions are not an option, contact the loan service provider to provide instructions before making an extra payment. After the payment posts, check your account to make sure it was processed correctly.
Resist Extending Your Repayment Deadline
Opportunities to extend your loan repayment period to lower your monthly payment may sound good, but you'll pay more in the long run, as interest continues to accrue. Unless you absolutely cannot afford the payment, stick with the original timeline.
Explore Loan Forgiveness and Repayment Programs
Some federal student loans may qualify for forgiveness programs after meeting specific criteria. Certain employers may also offer student loan repayment programs, which may help you pay off your student loans faster. Take some time to research qualification requirements and and evaluate your options.
Watch Out for Scams
Scammers sometimes target borrowers with unrealistic promises. Avoid any company that offers immediate loan forgiveness and watch out for these red flags:
- Requiring upfront fees
- Asking for your StudentAid.gov login information
- Requesting access to your banking or credit card information
- Pressuring you to act quickly
Avoid These Common Pitfalls
When it comes to student loans, a seemingly small mistake may sometimes have serious consequences. Avoid these common missteps:
- Ignoring your statements: Regularly review your account to make sure balances are accurate, and payments have been applied correctly.
- Making late payments: Even one late or missed payment may trigger fees and harm your credit.
- Defaulting on your loan: If you're struggling financially, contact your lender before falling too far behind. Once a loan goes into default, consequences become more severe.
- Choosing the wrong repayment plan: A lower monthly payment may increase interest costs over time. Compare the long-term costs before switching plans.
- Forgetting to provide payment instructions: Without specific instructions, lenders may use extra payments to advance your due date instead of reducing principal, costing you more in interest. If this happens, contact the lender immediately to request a correction.
Determine If Refinancing is Right for You
Refinancing combines one or more student loans into a new loan, ideally at a lower interest rate or with a shorter repayment term. A lower rate may reduce total interest costs, and a shorter term may help you pay off your loan faster. Refinancing may also simplify repayment by consolidating multiple loans into one monthly payment.
The benefits may be attractive, but there are some potential drawbacks. Refinancing federal loans into a private loan may cause you to lose federal protections, including income-driven repayment plans and loan forgiveness programs. You'll typically need good credit and a reliable income to get approved. Some private student loans also have variable interest rates, which may introduce additional risk. Before refinancing, compare projected total repayment costs and consider whether you might need the federal benefits in the future.
Frequently Asked Questions
Is there a penalty for paying off my student loans early?
Many federal student loans do not include prepayment penalties and private lenders often allow early repayment without fees. It's important to contact your lender or review your loan agreement to confirm.
How do I make sure my extra payments go toward the loan principal?
Most lenders offer online or mobile app payment tools that allow you to indicate how you want the overpayment to be applied. Check your account settings and make sure it's set up to apply payments to the principal instead of advancing the due date. If you can't find this feature, contact your lender. After extra payments post, check your account to make sure it was applied correctly.
Should I refinance my student loans to pay them off faster?
The answer to this question depends on your personal circumstances and the refinancing terms. Refinancing may help you pay off your loans faster by lowering your rate or reducing your repayment term. It may also result in losing federal benefits, like forgiveness programs and income-driven repayment plans. Carefully weigh the pros and cons before making a decision.
What should I do if I can't afford my monthly student loan payments?
Contact your loan provider right away. Federal borrowers may qualify for income-driven repayment, deferment, or forbearance options. Acting early may help you avoid delinquency or default.
