Updated May 8, 2019

Paying Off Student Loans Early

Read more about Student Loans

Paying off those student loans will have a positive impact on your future. So how can you do it sooner? Read on for payment plans and other tips you can't afford to miss.

© CreditDonkey

Overview

Student loans can be stressful. Paying them off quickly means much more than peace-of-mind as it gives you more financial freedom and stability.

Pros and Cons of Paying Off Loans Early

Getting out from student loan debt isn't the right choice for everyone. Read on for the good and bad before you decide.

PROs

  • Invest or Save Money
  • Begin a Retirement Program
  • Lower Your Debt-Income Ratio
  • Start a Business

You Should Know: Unlike some other types of loans, federal or private student loans do not have pre-payment penalties.

CONs

  • Limited savings for daily or emergency needs
  • Can hurt your credit worthiness

Read on to see if paying off your loans early is right for you.

Should I Pay Off My Student Loans Early?

Here are some tips to consider before paying off student loan debt:

Pay What Costs the Most First
Student loans may be impacting your finances less than other types of debt. Consider:

  • A $25,000.00 student loan with a 6% interest rate will have monthly payments of $495.03. That costs $8,306.15 in interest over the course of the loan.

  • A $15,000.00 credit card debt with a 24.50% interest rate will start with a minimum monthly payment of $592.00. That costs you $6,335.00 in interest, plus an additional $569.00 in principal.

Using the credit card example, you'll pay 13% more in interest and additional principal over the life of the loan compared to the student loan. Getting rid of that debt first is the smart financial move

Hang Onto Your Tax Deduction
Student loans offer savings through interest tax deductions. If you meet the following requirements, you can write off a maximum of $2,500 paid in student loan interest:

  • You are not claimed as a dependent on anyone's tax return.*

  • You are obligated to pay interest on a qualified student loan.

  • You paid interest on a qualified student loan.

  • Your filing status is not married and filing separately.

*If you are a parent and claim the student loan, you MUST claim your child as a dependent on your tax return.

You Should Know: You may also be able to deduct simple interest paid on your student loans.

Other deductions may include: loan origination fees, capitalized interest, and interest paid on refinanced student loans on your tax return if you used your loan balanced to pay for:

  • Tuition
  • Fees
  • Room and board
  • Books
  • Supplies
  • Equipment
  • Other necessary educational expenses at a qualifying school

TIP: Use a single credit card specifically for qualifying education expenses. Interest paid on credit card debt used to pay qualified education expenses may also qualify for deductions on tax returns.

But use caution when charging education expenses to credit cards. Remember, credit card interest rates are higher than student loan interest rates, and the cap on student loan interest deduction is $2,500.

Pay Off Bad Debt vs. Good Debt
Student loans and mortgages are considered good debt. Here's why:

  • Balance owed on the account decreases as the loan is paid.
  • Mortgages are investments in property that is expected to increase in value.
  • Student loans are expected to either increase your net worth or boost your earnings.

On the other hand, credit cards are considered revolving debt. Depending on the credit limit versus the balance due on the credit cards, credit card debt can hurt your credit score and your ability to obtain additional credit.

Bad debt also includes personal loans with high or variable interest rates, loans taken out for discretionary purposes (e.g., vacation, clothing), and payday loans.

How does paying off student loans affect my credit score? Keep reading to find out.

HOW STUDENT LOANS AFFECT CREDIT SCORE

Student loans are considered installment loans which affect your credit score in a different way than revolving credit lines - such as credit cards.

Installment Loans
These are considered less risky than revolving credit debt. Some of these loans are backed by equity (such as a home or automobile loan). Some installment loans must be paid back in a short period of time.

But most installment loans are stretched over longer time frames (5, 10, and 30 years). So these loans may help balance out your ability to obtain credit.

Revolving Loans
These are outstanding balances that will increase and decrease that include credit card debt.

The outstanding balance due compared to the credit limit affects the credit score for these types of loans. Revolving debts are considered a higher liability than installment loans.

The debt-to-income ratio helps determine credit worthiness.

For example, most mortgage lenders require a debt ratio of 36% or less of debt income. Some lenders (those that offer government-backed loans) allow a higher debt ratio of 41%.

If your gross monthly income is $5,000 and your monthly debt obligations are $1,500, then your debt-to-income ratio is 30%.

Lenders also look at the type of debt when reviewing credit liability. This is how paying off student loans (good debt) - rather than bad debt - may hurt your ability to purchase a home.

COMMON STUDENT LOAN PAYOFF QUESTIONS

Should I pay off my student loan in one lump sum?
There is no one-size-fits all answer to this question. Here is what you need to consider:

  • Are you going to apply for mortgage? A mix of debt type may increase your approval rating for the loan.

  • Have you considered how student loans affect your credit score?

  • Have you saved money to pay off your student loans in one lump sum? You aren't taking out a loan with a higher or variable interest rate to pay off your student loans?

  • Have you considered paying off loans that cost you the most money first?

  • Do you need the annual student loan tax deductions?

  • If you are paying some of your student loans off in one lump sum, have you thought about smart ways to pay the loans off early?

Can I negotiate my student loan payoff?
You may be able to negotiate a student loan payoff with a private student loan lender. Settlement might be difficult. Ask your lender what they would be willing to negotiate, rather than approach them with a set proposal.

Before considering student loan payoff, see if your loans are eligible for loan forgiveness, discharge, or income-driven repayment options. Read on to learn about these possibilities.

Repayment Plan Options

Got Federal loans? You're automatically assigned to the Standard Repayment Plan, which evenly divides payments over 10 years.

Taking the average student debt of $37,000 and average 5% interest, this means paying $392 per month for 10 years.

If you can't afford that, other plans are available. These include:

Graduated Repayment Plan
This is still a 10-year plan, but the payments start out low and grow over time. Your payment will increase by 20% every two years.

The max payment will never be more than 3x your original payment. This is a great option if you believe your income will increase over the next decade.

Extended Repayment
Under this plan, your term could be extended up to 25 years. This makes your monthly payments lower. However, you pay a lot more in interest over time.

These plans don't exactly help you cancel loans. But they make loans more manageable so that they can be paid off. Read on for repayment plans that offer forgiveness.

The U.S. Department of Education provides a free Federal Student Aid Repayment Estimator. Use the calculator to help you compare available repayment plans.

Income-Driven Repayment Plans with Forgiveness

You can also choose one of the 4 income-driven repayment options. With these plans, your monthly payment is based on your income.

If you earn very little, your payments could even be $0. After 20 - 25 years of payments, the rest of the balance will be forgiven.

Here are important things to know about the income-driven forgiveness program:

Only Federal loans are eligible
Direct and Direct PLUS Loans are eligible. If you have other loans (such as Federal Stafford Loans or Perkins Loans), you may need to consolidate them into a Direct Consolidated Loan first.

You Should Know: Private loans and Parent PLUS loans are not eligible to be consolidated

Your payment is based on your discretionary income
You monthly payment can be as little as 10% of your discretionary income. If you earn very little, your monthly payments could even be $0.

Discretionary Income = Adjusted Gross Income - 150% of the federal poverty level for your family size.

For Example:

  • Income is $40,000 a year (after taxes)
  • Family of 1
  • Poverty level for family of 1 is $12,060.
  • 150% X Poverty Level = $18,090

Discretionary Income = $40,000 - $18,090 = $21,910.

Depending on the plan you choose, after 20 - 25 years of payments, the rest of the balance will be forgiven.

Here are the available income-driven payment plans:

INCOME-BASED REPAYMENT (IBR)

You must have Federal Direct Loans or Federal Family Education Loans (Stafford, Federal PLUS Loans, and Federal Consolidation Loans) to qualify.

  • Loans taken out before July 1, 2014: Students pay 15% of their discretionary income. After 25 years of payments, any amount left over is forgiven.

  • Loans taken out after July 1, 2014: Students pay 10% of their discretionary income. After 20 years of payments, any leftover amount is forgiven.

As your income increases, so does your payment. The maximum payment is the amount of the Standard Repayment Plan's payment.

As a bonus, the government will pay your interest on subsidized loans for the first 3 years. After that, the unpaid interest may get added to your principal balance. Luckily, this doesn't happen until your IBR payment equals the Standard Repayment payment.

Say you have $50,000 in student loans with an interest rate of 5%.

Under a Standard Repayment Plan, this means you will owe a total of $63,640 including interest. Your annual adjusted income is $30,000.

But you enter the Income-Based Repayment plan with a monthly payment of $148/month. After 25 years of payments on this plan, you will have paid a total of $44,662. The rest is forgiven at that point.

The example above isn't always the case, however. You will pay more interest over the life of the loan - because it is 20 - 25 years rather than the Standard Repayment Plan's 10 years.

And as your monthly income increases, so does your monthly repayment amount, up to that of the Standard Repayment Plan.

PAY-AS-YOU-EARN REPAYMENT (PAYE)

Fewer graduates will be eligible for this program because of date restrictions.

  • You must be a new borrower after October 1, 2007. In other words, you must not have any student loans dating before this date. You must also have taken out an eligible loan after October 1, 2011.

  • Payments are 10% of your discretionary income. If you don't have an income right now, you don't have a payment.

  • Your outstanding balance is forgiven after 20 years of payments.

This loan's max payment also equals the Standard Repayment plan payment. Interest payback begins when you reach that amount.

NOTE: You must reapply for these programs once every 12 months. Otherwise, the loans will resume at the Standard Repayment Amount.

REVISED PAY-AS-YOU-EARN REPAYMENT (REPAYE)

The REPAYE program is for people who don't fall into one of the above categories. There are no date restrictions. Parent PLUS loans and most private loans are excluded.

  • Payments are 10% of your discretionary income.

  • There is no cap on the payments, unlike the other plans we discussed thus far. As your income increases, so do your payments. This could make for some hefty bills if you become successful.

  • Your outstanding balance is forgiven after 20 years of payment. Because there is no payment cap, you won't have any interest added to your principal balance.

INCOME-CONTINGENT REPAYMENT (ICR)

This is the ONLY repayment plan available for borrowers with Parent PLUS loans. To be eligible, the Parent PLUS loans must first be consolidated into a Direct Consolidation Loan.

  • For the ICR plan, discretionary income = your adjusted gross income - 100% of the poverty level (instead of 150%).

  • Your payment is 20% of your discretionary income OR payments based on a 12-year repayment plan, whichever is less. This payment may also exceed the Standard Repayment Plan monthly payment.

  • The government does not subsidize any unpaid interest. 100% of the unpaid interest gets added to your loan balance annually. However, no more than 10% of the loan balance will be added.

    Keep learning to see if you qualify for student loan forgiveness and cancellation.

WARNING: The IRS requires you to include any forgiven loan amounts as income. This means you'll be taxed on the forgiven amount.

This may still be the better option. Your tax liability is often much lower than the amount forgiven.

PUBLIC SERVICE LOAN FORGIVENESS (PSLF)

If you work for a government agency or non-profit, you may be eligible for Public Service Loan Forgiveness.

  • You MUST be enrolled in one of the 4 Direct Loan Program repayment plans to qualify.

  • You must work full-time and make 120 qualifying payments. Payments made before enrollment don't count as qualifying payments towards PSLF.

  • After 10 years of payments in any of the above plans, your loan balance may be forgiven.

If you have Federal Perkins Loans and/or Federal Family Education Loans (FFEL), you must consolidate them into a Direct Consolidated Loan in order to qualify for PSLF. You also need to make 120 payments towards the new consolidated loan.

Think you qualify for student loan forgiveness? The government has a form you can fill out and submit in order to find out. You can check out the form here.

Loan Forgiveness and Cancellation

There are many assistance programs available today that may qualify you for cancellation or loan forgiveness.

Federal Perkins Loan Cancellation and Discharge

Perkins Loans are no longer offered. However, if you took them out before the expiration, you may be eligible for Federal Perkins Loan Cancellation.

Look into this BEFORE you consolidate your Perkins Loans. Once you consolidate, you may no longer be eligible.

This forgiveness program can offer 100% forgiveness in just 5 years. You get a fixed percentage of loans (plus interest) forgiven for each year of service. They are as follows:

  • 15% for the 1st year
  • 15% for the 2nd year (total 30%)
  • 20% for the 3rd year (total 50%)
  • 20% for the 4th year (total 70%)
  • 30% for the 5th year (total 100%)

Several professions are eligible for this program, including teachers, nurses, firefighters, and law enforcement officers.

NOTE: You must have taken out the Perkins Loan BEFORE 9/30/2017. And the loan can't be canceled the same year it was disbursed. It's up to your school to decide if you qualify for forgiveness.

LOAN FORGIVENESS FOR TEACHERS

Teachers working at a low-income school for 5 consecutive years may qualify for loan forgiveness if they have:

  • State certification
  • A license to teach in that state
  • Student loans not currently in in default

Elementary school and middle school teachers may receive up to $5,000 in forgiveness.

Teachers who specialize in math, science, or special education may receive up to $17,500 in forgiveness.

LOAN FORGIVENESS FOR NURSES

Nurses have several forgiveness programs available to them.

Nurse Corps Loan Repayment Program
Eligible for nurses, RNs, APRNs, and nurse educators who work in an eligible Critical Shortage Facility OR teach in an eligible public or private nonprofit school of nursing.

After 2 years of service, you can get 60% of loan repayment. After another year, you can get 25% more.

National Health Service Corps Loan Repayment Program
Provides loan repayment for health professionals working in medically underserved areas. This includes nurse practitioners and certified nurse-midwives.

You can get up to $50,000 of repayment for a 2-year service.

For more details on loan forgiveness for nurses, check out our full article
Loan Forgiveness for Nurses.

LOAN FORGIVENESS FOR DOCTORS

National Health Service Corps provides up to $50,000 towards your medical school debt for those serving in Health Professional Shortage Areas. Eligible fields include:

  • Primary care medical
  • Dental
  • Behavioral health professional

After a 2-year commitment, you can apply to continue your service in exchange for further loan forgiveness.

Check out our full article: Loan Forgiveness for Doctors.

LOAN FORGIVENESS FOR MILITARY

Army Repayment Program
Active members can get 33.33% of their loan balance paid for each year of service, up to $65,000 for 3 years.

You must request the Loan Payment Program before enlisting. Also, you must score at least a 50 on the Armed Services Vocational Aptitude Battery. Those in the Reserves can get 15% each year, up to $20,000.

Navy Repayment Program
Navy service members can receive up to $65,000 over the course of 3 years.

To qualify, you must have had the loan prior to enlisting in the Navy. Also, you must include your application for the Repayment Program prior to enlisting.

Air Force Repayment Program
Members of the Air Force Judge Advocate General Corps are eligible.

You can get up to $65,000 over a 3-year period. This is paid directly to your student loan provider.

CHECK YOUR STATE FORGIVENESS PLANS

State-funded student loan forgiveness plans are also available depending on where you live. These programs often require you to work in an underserved area.

Most of the plans offered are for nurses, doctors, lawyers, teachers, and veterinarians. But you can also find programs for other professions.

For example, New York offers repayment for social workers through the NYS Licensed Social Worker Loan Forgiveness Program. This program offers up to $26,000 in loan forgiveness.

A few requirements for the program include:

  • You must live in NY for a year
  • You must be a licensed social worker
  • You must not be in default on your student debt

Texas offers the Loan Repayment Program for Speech-Language Pathologists and Audiologists. This program encourages students to work in speech-language pathology. The requirements and amount offered may differ.

TIP: Take the time to check out what your state offers. You never know when free money might be available - free money to help reduce or payoff your student loans and invest in your future.

EMPLOYEE ASSISTANCE PROGRAMS

Student Loan Repayment Plans (SLRP's) are gaining popularity as a company benefit offered by employers.
SLRP options:

  • Employer pays the student loan off in full.
  • Employer pays a portion of the student loan.

Check with your employer to find out if they offer the SLRP benefit and the specific eligibility and benefit parameters they have in place.

NOTE: Employer contributions paid toward employee tuition or student loans are considered taxable income by the United States government.

OTHER FORGIVENESS OPTIONS

You may be able to get your federal loans discharged due to a catastrophic event. These may include:

School Closing Down
If you attended a school, either in the United States or overseas, that closed, you may be eligible for a federal loan discharge.

For example, ITT, a large career college, closed its doors. Thousands of students were left in the dark about their education and federal loans. They are eligible for a discharge.

Students should contact the Department of Education, which can be reached at 1-800-433-3243.

Passing of a Student
Another type of discharge available is when a student has passed away. The federal loan servicer handling the student's loans will require a certified death certificate for authentication and will then discharge the loans.

Disability
If a student becomes disabled and is no longer able to perform the duties for which they received the federal student aid, they may be eligible for a discharge.

For example, students who went to a career college for Commercial Driver's License training may be eligible for a discharge if they became an insulin-dependent diabetic.

Always look at all the facts to see if you're eligible for a discharge. Do not pay for a loan that you might not owe.

COMMON LOAN FORGIVENESS QUESTIONS

How long does it take to have a student loan forgiven?
This depends on the program you apply for. For an income-driven repayment plan, it can take up to 25 years of payments before your loans are forgiven.

The PSLF program forgives your loans after 10 years. Other programs for teachers, nurses, and doctors can have loans forgiven in a little as 2 years.

Are federal student loans forgiven at age 65?
No. In the U.S., age-based loan forgiveness does not exist. In fact, the federal government can reduce your Social Security retirement benefits if you default on your student loan.

Do they forgive student loans after 20 years?
The federal income-driven repayment plans will forgive any remaining federal student loan debt after 20 years of payments (or 25 years, depending on your plan). You can enroll in one of the forgiveness programs if you have Direct Federal Loans.

Can student loans be removed from my credit report?
Student loans are only removed from credit reports after they are fully paid. Negative remarks (such as a late payment) will stay on your credit report for 7 years before being removed.

If you're in default with federal loans, a one-time rehabilitation option is available that will remove negative remarks and bring your loan current.

How can someone get out of student loan debt without paying?
There are various loan forgiveness programs that will forgive your loans if you work in certain careers, such as a teacher or nurse in a high-need area.

You can defer your loans until forgiveness kicks in, which means interest won't accrue and you don't make payments. Other ways to eliminate student loan debt without paying include:

  • Total disability discharge
  • School closing down
  • Death

Refinancing Your Loan

When you took out your student loan(s), you signed an agreement to repay the loan at a set interest rate. It may have been a variable interest rate, which means you're not particularly stuck with it forever.

You may be able to lower or lock your interest rate by refinancing your loan with a private lender. By refinancing, you take out a new, locked low-interest rate student loan that pays off most or all your existing student loans.

WARNING: Refinancing can be risky if you have federal loans. You may miss out on federal loan perks, such as federal forgiveness programs and repayment plans. Always weigh the pros and cons of refinancing before applying.

Benefits of Refinancing
Refinancing your student loans can result in thousands of dollars saved on interest. When you find the right lender, you can obtain a lower interest rate.

This means a higher percentage of your payments goes toward your principal balance, which also means you pay less interest over the life of the loan.

By paying more than the monthly amount after lowering your interest rate, you are investing in chipping away at the principal amount faster.

HOW TO FIND THE BEST LOAN REFINANCE OPTION

Student loan refinance options vary, so you'll want to shop around with private lenders and find the best offers. The best student loan refinances often have several benefits you should be looking out for.

Lower Interest Rates
The point is to save money. So you'll want to find an interest rate that is lower than what you pay now.

Note: Interest rates vary because they are based on individual credit and income. Check the rates from several lenders and keep the search within a 14-day window. This way it only counts as one credit inquiry on your credit report.

What's the Difference Between a Soft Credit Pull and a Hard Credit Pull?
A soft credit pull will not affect your credit score and does not show up on your credit report.

A hard credit pull will drop your credit score by at least a couple of points, and it will remain on your credit report for 2 years.

Fixed Interest Rates
If you can pay your loan off early, a variable rate might be your best option. Variable rates are often lower than fixed rates.

This can save you money over the life of your loan. Know that your monthly payment amount might go up if your interest rate increases, so if you aren't sure how long you'll need to pay off your debt, stick with a fixed rate.

Also, make your loan payments on time. Loan payments apply to interest first, then principal. By paying your loan late, your principal balance does not lower or pay off as quickly.

Consider: A $25,000 loan at a 4.29% interest rate. Paid 4 days late = $11.75 less principal paid. If you paid late for 12 months, this could easily top out over $140.00 a year in missed payments towards principal, and $1,400.00 over the life of the loan.

No Origination Fees
You don't have to pay origination fees for a private student loan.

But be careful: Your lender may include early repayment penalties in the contract. Steer clear of loans that charge for this. You do not want to pay more for a loan that you are trying to pay off early.

Automatic Payment Reduced Rates
You could qualify for a reduced interest rate, up to a .25% discount, by agreeing to have your payments automatically deducted from your checking account.

This reduction may not seem significant, but it will add up over the life of your loan. Ask your lender if this option is available.

Have questions about refinancing? We've got the answers below.

Common Refinancing Questions

What's the Difference Between Refinancing and Consolidating?

Refinancing student loans gives you the option to find a better rate and term. Consolidating your federal student loans means lumping multiple loans into one. You pay a weighted average of all interest rates on your loans.

Consolidating doesn't usually save you money. It simply reorganizes your student debts. You can refinance both federal and private loans, but you can only consolidate federal student loans (as they are part of a federal program).

Keep in mind that with consolidation, you may enter an income-driven repayment plan, which could have up to a 25-year repayment period. If you decide to refinance, you will lose out on any federal loan benefits that you may have accrued, such as federal loan forgiveness.

What Credit Score Do You Need to Get Approved?

It goes without saying: the higher your score, the better. Each lender has their own requirements. Basically, they don't want late payments, collections, or any type of default on your credit report.

The lenders we chose don't focus solely on your credit score, though it is certainly a factor. They look at your employment history, savings patterns, and potential for the future too.

How Do You Prove You Can Afford the Refinance?

The lender will ask you for appropriate documents. Be prepared to show your last few pay stubs and tax returns.

Lenders will look for consistent income and employment over the last year or so. They don't base your approval solely on your income. But it does play a big role.

Keeping your finances organized is extremely important, and student loans are no exception. For tips on how to keep track of your student loans, check out this blog from Student Debt Warriors.

How Do You Qualify to Refinance?

If you decide to refinance your student loans, there are some steps that you must take to qualify.

  • Be prepared to answer questions such as: What loans do you have, what are the interest rates, and are you able to afford a monthly payment?

  • Visit one or more of the websites suggested here and fill in your information.

  • You'll receive offers for loan refinancing. Make sure you read and understand the rates and terms of your offer(s).

  • Finally, accept the terms of your chosen loan refinance offer. You'll be on your way to lower student loan interest rates.

Tips For Paying Off Student Loans Early

If your loans aren't eligible for loan forgiveness, discharge, or income-driven repayment options, see if you can afford to pay them off early.

Start by weighing your finances versus prepayment or paying your student loans off early. Do NOT put yourself in a position of financial strain due to an effort to pay off your student loans early.

If you paid extra into your student loans to pay them off early, would you still be able to afford, without a struggle, the day-to-day expenses in your life like:

  • Health insurance: Can you afford to maintain health insurance?
  • Rent and utilities: Can you pay rent and keep the lights on?
  • Food: Can you purchase quality food? This is a staple of good health.
  • Automobile: Can you make your car and insurance payments, and keep your vehicle well-maintained?

TIP: Start an emergency fund. Remember: Life happens. An emergency savings fund should cover major living expenses, including housing and automobile, for at least 6 to 9 months.

Can you devote a portion of your income to AND towards paying off your student loan early?

If you answered no to most of these questions, it might not wise to pay your student loans off early. Consider paying extra later, ideally after your income increases.

In the meantime, if you're in repayment, realize that you are building a solid credit record by paying your monthly minimum on time.

If you answered YES to these questions, you should be able to pay extra on your loans.

Read on to discover smart ways to pay off student loans early.

PAYING EXTRA ON YOUR PRINCIPAL BALANCE

Start by paying over and above your monthly payment due. It might look like this:

You have a $25,000 student loan at 4.7% interest
You can afford to pay $150 every month in addition to your required $261 payment. By paying extra by each due date, you reduce the term of your loan by 50 payments.

That saves $2,769.49 in interest charges over the life of your loan.

Maybe you can afford to pay an extra $25 every month over your required payment of $261. This will reduce your loan term by 12 payments.

You save $717.51 in interest charges over the life of your loan.

Bumping up your payment slightly DOES make a difference. You can increase the extra money you put towards your student loan as your income goes up.

TIP: Consider making an extra payment each month. By making twice-a-month payments, you can shave off almost 12 months on a 10-year loan.

Let's review some other ways to pay off student loans early.

SMART WAYS TO PAY OFF STUDENT LOANS EARLY

Paying off student loans isn't easy, but it can be done. Consider these tips:

Start With the Most Expensive Loans First
Target the loans with the highest interest rates. You may be tempted to pay off the loans with the smallest balance first. But paying down the loans with the highest interest will save you the most money in the long run.

Try paying as much as you can on the loan with the highest rate and just the minimums on the others. Once that first loan is paid off, roll over the payment amount to the next loan with the second-highest interest.

Take Advantage of a 0% Credit Card Offer
If refinancing isn't an option, you can shift some of the balance to a zero-interest credit card.

Keep in mind there are also credit cards geared directly at college students. Credit card companies routinely use 0% promotional offers to attract new customers. Taking advantage of this can give you a breather from higher interest rates.

Before you sign on the dotted line on the credit card offer, make sure you have a plan in place to pay off the balance before the promotional period ends. Otherwise, you will be stuck with an interest rate even higher than that of student loans.

Make Sure Payments are Applied Correctly
Instead of applying extra amounts to the principal, your lender may credit it towards your next month's payment. This won't do much to reduce your interest or make a dent in the balance.

Specifically, ask your lender to avoid "Paid Ahead" status to ensure that your progress isn't slowed down.

Consider a Move
If you borrowed heavily from private lenders, relocating to a cheaper city can make managing your payments easier.

Places like parts of Kansas and Detroit, for example, have programs that provide loan reimbursement for borrowers who are willing to pick up their roots and try out a new city.

Read on for even more ways to speed up your student loan payoff.

CREATIVE WAYS TO ACCELERATE PAYOFF

Use Your Credit Card Rewards
Reward points and cash back are good for more than just shopping or travel. You can also use them to pay off your student loan debt.

For example, the Citi ThankYou Preferred Card allows you to convert their reward points into a student loan rebate voucher to make an extra payment.

Put Windfalls to Work
If you received a tax refund, slapping it down on your student loan is a smarter option than spending it on a shopping spree.

If you owe $30,000 in loans, putting an extra $3,000 (the average yearly tax refund) towards the balance would make you 2 full years faster. Imagine how much quicker you can pay off your loans if you do this every year.

Consider a Career in the Military
Military service offers some incredible benefits. You can receive a number of loan repayment or education sponsorship benefits.

You have to meet a number of requirements. But once you have filled them, you have access a number of different military loan repayment programs. Make sure to do plenty of research before making this major life decision.

Take a Survey
Taking surveys online is a quick, painless way to pick up a few extra dollars. Both My Survey and Survey Spot pay out rewards you can convert into an extra student loan payment. Who knew sharing your opinions could be such a money maker?

Ask Friends and Family for Help
If your parents or grandparents still give you cash for birthdays or holidays, ask them to redirect the money towards your student loans.

LoanGifting offers a student loan gift service that looks a lot like GoFundMe for student loan repayments. This allows donors to apply money to your loan balance with just the click of a button.

Many states have investing plans for family members to contribute toward education expenses. Check the programs in your state and talk with family members about options.

Take Advantage of Tax Deductions
Tax season isn't a ton of fun for anyone. But being able to deduct $2,500 of your student loan interest makes it easier.

If you went to an accredited university and meet some other requirements, take advantage of the tax deduction. Then use that money to pay down your loans.

Tax credits are available for college students and graduates, such as the American Opportunity Credit and Lifetime Learning Credit, along with the interest deduction. Make sure to speak with a tax professional to make sure that you get the most out of benefits that are available to you.

Increasing your income is another method, but it will require hard work. Let's explore some money-making opportunities next.

Paying off your student loans quickly is possible - this article from Budgets Made Easy explains how one couple paid off $45K in just 17 months.

Ways to MAKE MORE MONEY

Starting a side hustle, whether it's freelancing, pet sitting, or selling your old stuff on eBay, is an easy way to bring in a few extra bucks each month.

An online business is a great way to bring in extra cash. You don't even have to leave home to do it.

Donating plasma or join a clinical study to pull in some extra cash.

TIP: Ask for raise.

This is one of the most overlooked ways to increase your income. Start by doing your research to show why you deserve more money. You'd be surprised at what you can get just by speaking up.

Making more money is great but you can save by cutting down on expenses, too. Read on to learn how.

How to Cut Down on Costs

Trimming your budget is one of the most effective ways of clearing up extra cash to use towards student loan payments. This is not as hard as most people think.

Let an App Do the Work For You
Try out a budgeting app like Mint or Digit to see where your money is going each month.

Get a Roommate
Is your high rent eating up a good portion of your paychecks? Consider shacking up with a roommate or two or downsize to a less expensive apartment.

Sell a Vehicle
By purchasing cars with over 100,000 miles on them, you may be able to pay cash or make a large down payment. Then obtain a loan with much lower monthly payments.

Lower Costs
Consider cooking your meals and bringing your lunch to work. Cancel any "luxury" unnecessary items such as cable TV, gym membership, or daily Starbucks runs.

TIP: You can make serious headway in paying off your student loans by living with your parents. They would have to be on board and keep you accountable.

The trick is to use what you would have spent on rent and bills on your student loans. This could be anywhere from $700 - $1,500 per month depending on your location. Make sure you agree to a clear time frame for moving out.

INVEST IN YOUR FUTURE

Even with the standard repayment plan, you'll be debt free in 10 years. It's never too early to think about the best ways to ensure you're future success.

Retirement Savings Options
When you invest in retirement, you commonly have three main options:

TIP: The earlier you begin investing in your retirement, the better. What do you want your lifestyle to look like when you retire?

USA Today reports the average household led by a retiree makes $48,000 annually before taxes and spends roughly $46,000 a year.

  1. 401(k) or 403(b) Plans: These retirement accounts offered by an employer are your best option. Money in these 401(k) or 403(b) plans grow tax-free until you withdraw it in retirement.

    Plus, you are exempt from paying taxes either on the money you put into the plan or the money you withdraw from the plans, depending upon the option you choose.

  2. IRA: You can invest money into a tax-advantaged retirement account of your own, such as an IRA. This plan also sees tax breaks similar to the 401(k). Some of the tax and eligibility rules differ between Roth and traditional IRAs.

  3. Investment Account: You can pay into an investment account that does not have tax advantages. This is NOT the best investment plan for your future. Always choose plans that allow you to save maximum funds for your future - not plans that chip away at your wallet.

Home Ownership
Is a form of investment. If you can save on your student loans and purchase a home, an investment in real estate could pay off.

Mortgage payments are often less than monthly rent payments on an apartment. Per a report by CoreLogic, in 2018, the average homeowner with a mortgage balance that is less than their home's worth saw their equity shoot up by nearly $16,000.

BOTTOM LINE

Before paying down student loans, weed out all possibilities of loan forgiveness, discharge, or refinance. Then pay what you can afford. Do not sacrifice your basic living expenses or emergency savings.

To find extra money for student loan repayment, look for target areas where you can budget your money and bring in extra income. The sooner you get out of debt, the quicker you will be able to invest in yourself.

More from CreditDonkey:


National Student Loan Data System


Deferment vs Forbearance


Loan Forgiveness for Teachers

More Articles in Money Tips

Student Loans

Medical School Loans

Medical school can lead to a lucrative career as a doctor. But the price tag is pretty steep. Read on to learn how you can afford med school without risking your financial future.

July
19
2019

Marquise Diamond

Popular in the 1980s, the marquise diamond is making a comeback in both vintage and modern settings. Learn all about this distinctive cut in our guide.
More Articles in Money Tips







About CreditDonkey®
CreditDonkey is a student loan comparison website. We publish data-driven analysis to help you save money & make savvy decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: Many of the card offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.