How To Pay Off Your Student Loans Early

Paying off your student loans early can help you save hundreds — or even thousands — of dollars in interest. The average undergraduate borrower leaves school with $29,300 in debt, according to the College Board, and those balances can grow over time as interest accrues. The sooner you pay down your loans, the less you'll spend overall and the faster you'll free up room in your budget for other financial goals, like buying a home or saving for retirement.

Here's a step-by-step guide to help you pay off your student loans early and take control of your debt.

1. Make extra payments

Making extra payments is one of the most effective ways to pay off your student loans early. By paying more than the minimum each month, you can reduce your loan principal faster, which means you'll also pay less in interest over time.

“Borrowers can start by making extra payments beyond the minimum required each month, going toward the loan principal,” explains Chad Faul, a wealth advisor at Mercer Partners Wealth Management. “Creating a budget is essential to identify areas where you can cut back and redirect funds to your loans.”

Faul also recommends using any windfalls, like tax refunds or bonuses, to make lump-sum payments toward your student loans. You'll be surprised how much these extra payments can add up over time.

2. Switch to bi-weekly payments

Making payments twice a month instead of monthly can help you pay off your student loans faster while saving on interest. Instead of making one full payment each month, you'll split your payment in half and pay that amount every two weeks. Because there are 26 bi-weekly periods in a year, this strategy results in 13 full payments annually instead of 12.

“One of the best strategies is switching to bi-weekly payments instead of monthly,” says Dr. JoNataye Prather, an education strategist and financial literacy advocate. “It adds up to an extra payment every year, which can really make a dent without overwhelming your budget.”

You can use a student loan repayment calculator to see how much bi-weekly payments can save you.

Check Out: How To Choose the Best Student Loan Repayment Plan

3. Refinance to secure a lower interest rate

Refinancing student loans can reduce your interest rate, helping you pay off your debt faster and save money over time. This strategy works best if you have good credit and a stable income, as these factors can help you qualify for a lower rate.

Erika Kullberg is an attorney and personal finance expert who says she repaid $220,000 in student loan debt early. “One of the ways I accomplished this was by refinancing my student loans,” Kullberg explains. “I refinanced from a standard 10-year repayment plan to a five-year one. If I had stuck with the 10-year plan, I would have spent $82,000 in interest alone.”

Check Out: When Should I Refinance My Student Loans?

Kullberg says it's important to negotiate with lenders when shopping around for a refinance loan.

“Successfully negotiating a lower interest rate helped me save money on interest, which meant more of my payments went towards paying down the principal balance of the loan — which is key for paying off debt quickly,” she says.

However, Faul advises it's important to weigh the pros and cons before refinancing federal student loans.

“If federal loans are involved, refinancing converts them into private loans, forfeiting federal protections and benefits,” she says.

Current student loan refinancing rates

4. Use the debt avalanche or snowball method

The debt avalanche and the debt snowball method are two popular strategies borrowers have used to pay off their student loans. Each approach targets debt differently, so you can choose the one that best fits your financial situation and mindset.

• The debt avalanche method: Focuses on paying off the debt with the highest interest rate first. By tackling high-interest debt early, you reduce the total amount of interest you'll pay over time. This method is ideal if you're looking to minimize your overall costs.
• The debt snowball method: Focuses on paying off the smallest balance first and working your way up to the largest balance. Once you eliminate a small debt, you roll that payment into the next loan, creating momentum as you move toward larger balances. While this method may cost more in interest in the long run, it can help you stay motivated by providing quick wins early in the process.

There are pros and cons to both strategies, and the one you use will really come down to your personal preference. The debt avalanche method will save you more money in interest payments, but it could take longer to see progress. The debt snowball method may cost you more in the long run, but many borrowers find it more motivating because you gain a quick win once that first debt is paid off.

Why pay off student loans early?

Here are some of the biggest benefits of paying your student loans ahead of schedule:

• Save money on interest: Student loan lenders charge interest in exchange for loaning you money. The longer you keep your student loans, the more money you'll pay in interest. Paying them off early can save you thousands of dollars over the life of the loan.
• Lower your debt-to-income (DTI) ratio: Your DTI ratio measures the percentage of your monthly income that goes toward debt payments. A lower DTI ratio can make it easier to qualify for major financial milestones, like securing a mortgage or getting approved for lower-interest loans. Lenders often see borrowers with a low DTI as less risky.
• Reduced stress: Debt can begin to take a toll on you and negatively impact other areas of your life. Paying off your student loans early can lower your stress and provide more peace of mind.

Trade-offs of paying off student loans early

Paying off your student loans early can save you money on interest, but it's important to consider the trade-offs.

Using extra income to make larger loan payments can leave you with less money for other priorities, like building an emergency fund, saving for retirement, or investing. While eliminating debt feels great, it's important to balance repayment with your other financial goals.

Another factor to keep in mind is the loss of the student loan interest deduction. Once your loans are paid off, you'll no longer be able to deduct up to $2,500 in student loan interest on your taxes each year. This deduction reduces your taxable income and doesn't require itemizing, so it's a valuable benefit while you're repaying loans.

Tips for balancing early loan repayment with other goals

One of the challenges borrowers face is figuring out how to balance early loan repayment with other financial priorities. For example, you may want to pay off your loans early and save money for a down payment on a house.

Prather recommends creating an emergency fund first so you aren't derailed by unnecessary expenses.

“Once you've done that, split your extra funds between paying off loans and saving for your future, whether it's retirement or other big goals,” she explains. “It's about knowing your priorities and sticking to them.”

Kullberg adds it's important to have a clear budget in place that accommodates various financial goals.

“For example, if your goal is to pay off your student loan debt early and build an emergency fund, you can allocate an extra $500 in debt payments and $500 to go towards your emergency fund each month,” she says. “Once you reach those goals, you can adjust your budget to focus on new goals like saving for a downpayment.”