Strategies for Paying Off Student Loans Faster

Strategies for Paying Off Student Loans Faster

More than 45 million Americans carry student loan debt — each averaging over $37,000 in federal debt and nearly $55,000 for private loans. Even 20 years after college, half of all borrowers still owe $20,000 on their outstanding balances, according to the Education Data initiative.

Depending on your interest rates, loan amount, annual income, and repayment plan, it could take 10 to 30 years to pay a student loan balance down to zero. If you’re only making the minimum payment every month and sticking to your original terms, you could be stuck paying thousands of extra dollars over the life of your loan.

But if you want to learn how to pay off student loans quickly, consider some of these strategies for paying off student loans faster so you can finally move on with the rest of your financial life.

Make Extra Payments

The fastest option to pay off student loans is to pay more than the minimum monthly payment. The more you can afford to pay toward the principal, the quicker your balance will dwindle, and the less interest you’ll pay.

For example, if you have a $20,000 loan with a 5% fixed interest rate on a standard 10-year repayment plan, your minimum monthly payment of $212 would accrue $5,456 in interest by the end of the decade. But if you scrounged up an extra $50 every month, you could pay off the loan in eight years, reducing your total interest to $4,181 — which means you get back $1,275 and two years of your life.

If you dedicate every winning lotto scratcher, tax refund, work bonus, and birthday check directly to your student loan, imagine how quickly you could be debt-free. Plug some numbers into a student loan calculator to see how much faster you can pay down your debt with extra payments. 

There’s no prepayment penalty for paying more than the minimum, but make sure your loan servicer applies the extra amount to your principal balance instead of applying it to next month’s payment. 

Refinance Student Loans

Even if you can’t make extra payments or follow other tips for reducing student loan debt, refinancing could help you pay off your loan faster by moving your balance to a new loan with a lower interest rate, shortened payment terms, or both. A shorter term may increase your monthly payments, but you’ll save money on interest and reach financial freedom faster.

For example, refinancing that $20,000 loan from a 5% interest rate and 10-year repayment plan to 4% interest over seven years would increase your monthly payment by about $60, but you’d save nearly $2,500 in interest and shave three years off the term.

You’ll need a solid credit score, income, and employment history to qualify for the best rates and terms when refinancing. Refinancing essentially shuffles all your private or federal loans into a new private loan. That means if you refinance a federal student loan, you’ll lose access to federal benefits like income-driven repayment plans and loan forgiveness programs, so be sure to weigh the costs and benefits before privatizing.

Credit unions often offer lower lending rates than for-profit banks, so consider starting your refinancing search at your local credit union to compare their options.

Consolidate Student Loans

While refinancing refers to merging multiple (private or federal) loans into one private loan with better rates or terms, consolidation combines your federal student loans into a single federal loan. The key difference is that consolidating won’t reduce your interest rate; instead, it takes the average of all your federal interest rates.

While consolidation won’t necessarily save you money, it can simplify repayment by condensing multiple bills into one payment. Rather than refinancing a loan to reduce the terms, consolidation often extends the repayment terms to lower this monthly bill.

The most significant benefit is that consolidating maintains the federal loan benefits, like income-based repayment terms and forgiveness programs, that you’d lose if you refinanced. However, if you aim to figure out how to pay off student loans quickly, these long-term federal repayment plans might not work in your favor. 

Increase Income and Decrease Expenses

Understanding your monthly cash flow is critical to knowing where to cut back and how to reallocate those savings. You can swing the financial pendulum in your favor by finding ways to increase your income and decrease your monthly expenses.

To tap into more strategies for paying off student loans faster, consider the following:

• Start a side hustle to earn extra cash by driving for rideshares or food delivery services or offering your business skills through freelance or consulting work.  
• Sell clothing, books, games, furniture, and other items you don’t use through online marketplaces or a good old-fashioned garage sale.
• Ask for a raise at work — you know you’ve earned it, especially if you’re putting that expensive college degree to good use.

On the flip side, cutting expenses from your monthly budget might yield quicker gains by freeing up funds. Try:

• Preparing meals and making coffee at home instead of spending money at restaurants and cafes. Remember, financial freedom requires some sacrifices, like saying no to those late-night fast-food runs you loved in college.
• Cutting cable and your roster of streaming subscriptions that you don’t even have time to watch. At the very least, try trimming your collection down to one service.
• Or, if you’re overwhelmed by the number of subscriptions you’ve accumulated and the recurring monthly bills they’re pulling from your account, download a subscription management app to identify leaks in your budget.

Additional Resources and Strategies for Paying Off Student Loans Faster

If you’re still wanting additional tips for reducing student loan debt, try these tools and resources:

• Do the math. Calculate your student loan payments and payoffs, choose the best repayment option for your situation, and decide whether consolidation could help you reach your goals with the Federal Student Aid Loan Simulator.
• Reduce your burden. Take advantage of tax deductions when you deduct up to $2,500 for interest paid on student loans, whether federal or private. Read these instructions from the IRS to see if you qualify. And, if you happen to get a tax refund, put (at least some of) it toward your loan balance.
• Don’t get trapped. Income-based repayment plans and student loan forgiveness programs can be a lifesaver if you struggle to repay your loans. Still, if your goal is to pay off your loans faster, these programs could work against you by lengthening the loan term to lower your monthly payment. Reevaluate your repayment options to ensure you’re using the right plan. 

Crush Student Loan Debt with Credit Union Aid 

When your student loan debt feels like a weight that you’ll never be able to shake free, just focus on taking small steps every month to reduce the burden. If that still seems too heavy, remember that credit unions can help lighten the load.

Offering competitive interest rates, flexible funding terms, lower fees, and more personalized support than you typically find at federal lenders and for-profit banks, credit unions can be a great option for refinancing your student loan debt and achieving your financial future, faster. Find a credit union near you with our Credit Union Locator for first-rate assistance as you learn how to pay off student loans quickly. 

Did You Know?

Credit unions offer many tools to ease the burden of student loan debt, ranging from flexible refinancing options to automatic loan payment discounts to free budgeting resources. Plus, unlike large shareholder-owned banks, your local credit union is built on personalized relationships with members like you, which means you’ll get exceptional service and one-on-one financial guidance to help eliminate your student loan debt faster.