While some may argue that you can’t put a price on a good education, many of today’s graduates face the grueling task of paying off student loans within a reasonable time frame. However, if you’re feeling overwhelmed by student loan debt, there are a few ways to pay off student loans quickly.
How long should it take to pay off student loans?
It typically takes between 10 and 30 years to pay off student loans, but the time frame varies by individual and is impacted by several factors, including the loan interest rate, the total balance owed, the borrower’s annual income and the repayment plan.
“If your total student loan debt at graduation is less than your annual income, you should be able to afford to repay your student loans in ten years or less,” says student loan expert Mark Kantrowitz, publisher and vice president of research of Savingforcollege.com. “The average student loan repayment term, however, is 16 years.”
Types of repayment plans
The choice of repayment plan has the greatest influence on how long it will take you to eliminate student loan debt, Kantrowitz says.
For most federal student loans, the standard repayment plan is 10 years, though it’s possible to select a longer repayment horizon. Options include extended repayment, graduated repayment and income-driven repayment.
Extended repayment offers repayment terms of up to 25 years, while the graduated repayment plan offers timelines of 10 to 30 years, with payments beginning low and increasing every two years. This option is designed for borrowers whose income may be low now but is likely to increase regularly.
The repayment timeline for income-driven plans is generally 20 to 25 years, depending on the specific option you chose. There are several income-driven repayment choices, including Revised Pay as You Earn (REPAYE), Pay as You Earn (PAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR).
Why pay off student loans fast?
Paying off your student loans quickly can be beneficial to your financial health in many ways. By doing so, you’ll be able to save for retirement sooner, improve your credit score and avoid interest accrual.
“Paying off your student loans faster also means you’ll pay less in interest, so if you want to save money, it’s a good idea to pay off your student loans sooner rather than later,” says Madison Block of American Consumer Credit Counseling.
This is especially true now, as interest rates on federal student loans are waived through Dec. 31, 2020. This is a great chance to make progress on paying down the principal on your student loans without having any interest accrue.
There are exceptions to this rule, however. For instance, if you plan to pursue any sort of loan forgiveness, it may actually benefit you to only make the standard or minimum monthly payments and nothing extra. Otherwise, you may pay off your loans before you qualify for loan forgiveness, which forgives any remaining balance on your loans after you’ve made 120 qualifying monthly payments.
Is it worth it?
Paying off your student loans quickly can certainly be worth it, but only if you’re financially prepared.
In order to avoid putting yourself in a less-than-desirable financial situation, you’ll want to have your finances in order and have a financial plan in place. Before you start paying down your student loans, take a look at your budget to make sure you can afford extra payments without ending up with more debt — paying back more than the monthly minimum on your student loans isn’t wise if it causes you to miss credit card or mortgage payments.
It also may not be worth it if you are dealing with other forms of debt, particularly high-interest debt. If you have a credit card balance with an interest rate of 16 percent, for instance, it makes more sense to put extra payments toward that account rather than toward a student loan with 5 percent interest.
8 ways to pay off your student loans fast
There are a few ways to start paying off your student loans faster:
Make additional payments.
Establish a college repayment fund.
Start early with a part-time job in college.
Stick to a budget.
Apply for loan forgiveness.
Lower your interest rate through discounts.
Take advantage of tax deductions.
1. Make additional payments
If you can afford it, make larger payments to cut the principal more quickly. By diminishing the principal balance, you’re minimizing the duration of the loan period and the interest accrued.
For example, a $25,000 student loan with 6.8 percent interest and a 10-year payback period would cost $288 a month. Paying $700 a month instead of $288 enables the borrower to repay the loan in just over three years.
Another strategy is adding payments and sending in checks every two weeks rather than monthly.
“Just be sure to advise your loan servicer to apply your extra payment to your principal balance, rather than placing your account in a ‘paid ahead’ status,” says Jessica Ferastoaru, student loan specialist at Take Charge America. “This will allow you to pay down your principal balance more quickly, and save money on interest.”
Takeaway: Making larger payments will help you cut through the principal more quickly, which will allow you to pay off your loan sooner.
Next steps: To realistically determine how large your loan payments can be, consult your budget and see where you may be able to reduce spending in order to accommodate larger loan payments.
2. Establish a college repayment fund
Another great approach to paying off student loans quickly is placing your money into an account you can’t easily draw from with the swipe of a card. Having money moved automatically into savings is effective because it’s forced. It enables people to set aside money to grow what otherwise would be spent on clothes or dining out.
Just make sure to set up an account that will be used only for paying back your college debt. Don’t use checking or savings accounts you already have, because you might use that money for something other than your student loan. Compare savings accounts and put your money in an account with a higher yield to maximize your savings.
Takeaway: Setting up an account specifically for your student loan repayment funds can be a great way to compartmentalize your finances. It can also help you control out-of-budget spending, allowing you to potentially make extra payments.
Next steps: Research savings accounts with high yields; then contact your preferred bank to set up your new account specifically for student loans savings.
3. Start early with a part-time job in college
Getting a part-time job while attending college is one way to keep college debt in check because it generates money you can use to help offset student loan debt.
Say that you are able to work a part-time job that allows you to put away $500 a month. In a year, that’s $6,000 you can put toward paying off student loans.
Takeaway: If you’re able to properly manage your coursework and a part-time job, a job can allow you to create a student loans savings account.
Next steps: Check your school’s resources or career center to see if they are hiring for any on-campus jobs. Typically, on-campus jobs are more understanding of unusual or busy class schedules.
4. Stick to a budget
Not knowing how to manage finances properly can prevent students from paying off their loans quickly and, as a result, delay more fulfilling life investments. By carefully planning and fully understanding your monthly cash flow, you can make some necessary sacrifices and avoid falling off the budgetary wagon.
“If you’re trying to pay down your student loans faster, one of the best ways to reach your goal is to develop a budget,” says Ferastoaru. “If you are able to meet a savings goal each month by sticking to a budget, you can use this money saved to pay down your student loans.”
Takeaway: Your financial health and spending habits can greatly impact your ability to pay off your student loans — be diligent about sticking to a budget during your repayment period.
Next steps: Do an assessment of your spending habits and your ability to keep a budget. If you find it hard to keep a solid budget as a college student, use our student budget calculator to help you get — and stay — on track.
5. Consider refinancing
If you’re not sure how to pay off student loans quickly or if it doesn’t seem feasible, you may be paying too much interest.
That’s where you might consider refinancing your loan into a better rate or a shorter repayment period. While refinancing federal loans with a private lender will cause you to lose some federal benefits, it could make paying off your loans more achievable.
Remember, however, that timing is key. Your credit score is typically going to be at its lowest immediately after graduation, which generally means that the interest rates you’re offered will be higher.
“It takes a few years of repaying your debts responsibly, by the due date, for your credit scores to improve. You also need to have a steady job,” says Kantrowitz. “Shop around for the loans with the best rates. The best advertised rate is not necessarily the rate you will be offered, so you may need to apply for several loans to see which lender gives you a better deal.”
Takeaway: If you’re overwhelmed by the prospect of paying down your loans quickly, refinancing may be a good option. While it’s not for everyone, refinancing can help you score a lower interest rate or different repayment terms.
Next steps: Before applying, compare offers from multiple lenders to determine if refinancing will save you money in the long run. If you decide to refinance your student loans, do your research and apply with the lender that will best suit your financial needs.
6. Apply for loan forgiveness
Forgiveness programs can eliminate all or part of your student loan debt, but each program has unique requirements and strict approval standards.
Perhaps the most well-known program is Public Service Loan Forgiveness (PSLF). In order to be eligible for this program, you must be employed in a public service position by a government or nonprofit organization and make qualifying payments under an income-driven repayment plan for 10 years. Getting approved for the program is notoriously difficult, so read through the details carefully to make sure you’re on track.
The Teacher Loan Forgiveness program is another option. In order to qualify, you must have an eligible loan under the Direct Loan Program or FFEL Program and teach full time for five consecutive years in a low-income school or educational service agency. In addition, at least one of those years must have been after the 1997-98 academic year. The program forgives as much as $17,500.
It’s also possible to have a portion of your student loans forgiven if you’re on an income-driven repayment plan. Once the 20- or 25-year repayment term ends with these programs, any remaining balance may be forgiven.
Takeaway: If you’re willing to work in a specific occupation and adhere to a variety of other program requirements, it may be possible to get a substantial portion of your loans forgiven, potentially saving yourself thousands of dollars.
Next steps: Be sure to do your research thoroughly if you hope to qualify for a forgiveness program, particularly a complex program like PSLF. You’ll want to make sure you’re making qualifying payments and are employed by an eligible employer.
7. Lower your interest rate through discounts
Even if you’re quoted a high interest rate, you may be able to lower your rate in other ways. For one, most lenders will offer a 0.25 percent to 0.5 percent discount if you set up automatic payments on your loan.
In addition, private lenders may offer other interest rate discounts if you meet certain criteria, such as making a certain number of on-time payments or taking out another loan with the company. If you have private student loans, ask your lender about any opportunities for interest rate reductions or discounts.
Takeaway: It may be possible to reduce the interest rate on your existing loans by setting up autopay or asking about loyalty discounts.
Next steps: Contact your lender to inquire about the various rate discount programs that may be available.
8. Take advantage of tax deductions
The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income.
You can claim this tax deduction if you’re legally required to pay interest on a qualified student loan and your filing status is not married filing separately. There are also adjusted gross income limits, which are set annually, for this program.
Those who qualify for the deduction will generally save a few hundred dollars on their income taxes, which could help with student loan repayment. “If you pay less in taxes, this could free up some extra money to pay down your debt. It’s a good idea to speak with a tax advisor to make sure you’re taking advantage of any relevant tax benefits related to your education,” says Ferastoaru.
Takeaway: The student loan interest deduction allows for deducting as much as $2,500 in interest paid on federal and private student loans. It can be helpful to use the savings you receive through this deduction to pay down your education debt faster.
Next steps: Confer with a tax adviser to find out whether you’re eligible for any tax credits and make sure you are not missing this potential opportunity.
Things to consider
Paying off your student loans is manageable with the proper planning. In order to pay off your student loans fast, you may have to make sacrifices, get a part-time job or get strict on a budget, but doing so can help you get out of debt faster and eliminate years of interest payments.
How to qualify for student loan forgiveness programs
How to pay for college
How to lower your student loan interest rate