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Ultimate Guide To Pay Off Student Loans Faster
Updated On September 30, 2024
Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.
If you want to know how to pay off student loans faster, you’re not alone. This guide will help you learn how to pay off student loans faster, your various student loan repayment options, the secret to pay student loans early and much more.
Here are some of the best ways to pay off student loans:
- Consolidate or refinance student loans
- Increase student loan payment
- Choose your payoff date
- Make a lump-sum payment
- Public Service Loan Forgiveness
- Get a side gig
- Pay the highest interest rate debt first
- Pay your student loan debt every two weeks
Consolidate Or Refinance Student Loans
Student loan refinance is one of the smartest tools to pay off student loans faster. Student loan refinancing, or private student loan consolidation, is the process of combining your existing federal student loans, private student loans or both into a new, single student loan. This new single student loan has a lower interest rate than your current student loans, has a single student loan servicer and a single monthly payment.
Therefore, student loan refinancing can help you save money, stay organized and pay off your student loans early.
The key advantage of student loan refinancing is your ability to lower your interest rate. Plus, when you refinance student loans, you can choose a fixed or variable interest rate. You can also choose a repayment period, which typically ranges from 5 to 20 years.
To get approved for student loan refinancing, lenders will look at your credit profile, income, monthly cash flow and other factors.
This student loan refinancing calculator shows you how much money you can save when you refinance student loans.
Increase Student Loan Payment
It may sound like the last strategy that you want to follow if you’re struggling to pay student loans, but you would be surprised how much it can help.
When it comes to student loan repayment options, the goal is to reduce the principal balance of your student loans. The faster you can reduce your principal, the faster you can save on interest costs.
One smart strategy is to increase your monthly payment. The amount you choose is up to you, but any incremental amount should go to reduce your principal balance.
Let’s look at an example. Let’s assume that you owe $100,000 of student loans at an 8% interest rate and your monthly payment is $1,213. Now, let’s assume that you increase your monthly payment by $100 per month so that your new monthly payment is $1,313.
The extra $100 per month will save you $5,554 over the life of your student loans and help you pay off your student loans 1.08 years early.
It’s up to you how much extra you pay each month. With student loans, there’s no prepayment penalty so you can pay off your student loans early without any penalty.
Choose Your Payoff Date
When you evaluate your student loan repayment options, another strategy is to use the payoff date method.
With the payoff date method, you choose the payoff date when you would like to pay off your student loans.
Let’s look at an example. Let’s assume that you owe $100,000 of student loans at an 8% interest rate and your monthly payment is $1,213. The standard repayment terms for student loans is 10 years. Now, let’s assume that you want your payoff date to be 7 years so that you can pay off your student loans three years early.
To pay off your student loans three years early, you would need to increase your monthly payment by $360. That means that your new monthly payment would be $1,573.
Here’s the amazing part: not only will you pay off your student loans early, but also you will save $15,078.
Make A Lump-Sum Payment
When it comes to student loan repayment, another strategy is to make a one-time, lump-sum payment.
A one-time, lump-sum payment is basically making a one-time extra payment that directly reduces your principal student loan balance.
The source of your lump-sum payment may be a bonus, holiday present, tax refund, gift or even savings. Make sure to inform your student loan servicer in writing to apply the lump-sum payment to reduce your principal balance.
Let’s look at an example. Let’s assume that you owe $100,000 of student loans at an 8% interest rate and your monthly payment is $1,213. Now, let’s assume that you make a one-time, lump-sum payment.
Here’s how much money you can save and how much faster you can pay off your student loans by making one of the following lump-sum payments:
$1,000 lump-sum payment: Save $1,032 (+ 2 months early)
$5,000 lump-sum payment: Save $4,941 (+ 9 months early)
$10,000 lump-sum payment: Save $9,368 (+ 16 months early)
$15,000 lump-sum payment: Save $13,333 (+ 24 months early)
$20,000 lump-sum payment: Save $16,877 (+ 31 months early)
Public Service Loan Forgiveness
If you want to know how to pay off your loans fast, this strategy may take some more time. However, it could be worth the wait if you meet all the requirements.
The Public Service Loan Forgiveness program is a federal program created in 2007 to help public servants have all their federal student loans forgiven.
There are certain qualifications that you need to meet. If you meet these qualifications, you can have your federal student loans forgiven after making 120 qualifying monthly payments.
You will need to work in a qualifying public service role at a qualifying employer and be enrolled in an income-driven repayment plan. You will also need to make the majority of your payments under the income-driven repayment plan.
If you have FFEL student loans, make sure that you first consolidate FFEL Loans into a Direct Consolidation Loan with the federal government. This is because FFEL do not qualify for Public Service Loan Forgiveness. Why? FFEL student loans are not federal student loans; they were issued by private financial institutions such as banks. Therefore, the federal government cannot forgive these types of federal student loans.
You can use this public service loan forgiveness calculator to determine which income-driven repayment plan is best for you and helps you maximize your student loan forgiveness.
Get A Side Gig
The best way to pay off student loans may involve making extra money.
Yes, you may be working hard in your current job, but you may be able to make extra money with a side gig.
There are so many types of side gigs. You could launch your own business. For example, you could be a tutor, create a website design business or start a dog-walking empire. You can buy and sell used belongings online for a profit. The possibilities are endless.
Take the income that you earn to pay off your student loan balance. Make sure to write your student loan servicer to apply your extra payments directly to reduce your principal balance. Absent those instructions, your student loan servicer will hold the payment and apply it to your next monthly payment, which means you will pay more interest in the process.
Over time, this strategy will help you pay off your student loans faster.
Pay The Highest Interest Rate Debt First
When it comes to student loan repayment options, not all debt is created equally.
If you want to pay off your student loans more quickly, rank order your student loans by interest rate from highest interest rate to lower interest rate.
The higher interest rate student loans are costing you more money than the lower interest rate student loans.
Here’s how to use this strategy – known as the “avalanche method” – to your benefit.
Step 1: Always pay the minimum payment on all your student loans.
Step 2: If you make an extra payment, pay off the higher interest rate student loans first.
Step 3: After the highest interest rate student loan is repaid, pay off the second highest interest rate student loan next.
Step 4: Repeat this process with any extra payment you make until you pay off all your student loans.
This strategy is one of the smart ways to pay off student loans.
Pay Your Student Loans Every Two Weeks
If you want to know how to pay off student loans, rule #1 is you don’t have to pay your student loan bill once per month.
When it comes to student loan repayment options, you can pay your student loans early without a prepayment penalty. Another strategy is to make two payments, rather than one, per month.
You can simply divide your payment in half and pay each half once every two weeks. Since you get paid once every two weeks, you can match the timing of your paycheck to when you pay your student loans.
The net effect of this strategy is that you will end up making an extra payment at the end of the year, which can help you get out of debt more quickly.
Since student loan interest accrues daily, you also will save slightly on interest by splitting your payments.
Conclusion
Now that you know how to pay off student loans, you are on the fast track to become debt-free faster. With a solid understanding of your student loan repayment options and best way to pay off student loans, financial freedom may be closer than you think.
Refinance With SoFi
