How to pay off student loans faster: 10 tips

Graduating college can feel like the start of the rest of your life. Exciting new career possibilities and experiences lie ahead of you. But you might also see student loan debt on the horizon.

You’re not alone. A report from the Federal Reserve Bank of New York revealed that in the first quarter of 2022, total student loan debt had grown to $1.59 trillion. The good news is there are lots of different strategies for paying off student loans. The following list offers some ideas to consider, but student loans can be complicated. Talking to a financial expert first could help you identify the best options for your situation.

Key takeaways

• Paying more than the minimum payment, paying down the principal, making biweekly payments and paying high-interest loans first can help you pay less interest overall on your student loans.
• Income-driven repayment plans and loan forgiveness programs can lower your student debt or eliminate it.
• Consolidating your loans or setting up autopay can help you lower the interest rates on your loans.

The U.S. Department of Education says learning to budget can help you make the most of your student loans and set yourself up for future success. And budgeting can help you keep your finances under control and give you a clue when you need to adjust your spending.

The agency has budgeting tips to help you get started. And the Consumer Financial Protection Bureau (CFPB) has a spending tracker that could help you track where your money goes.

To create a working budget, it’s helpful to understand the terms of your loan or loans. Having more than one loan can also mean you might have different interest rates, repayment terms and monthly payments.

Many loans may also have a grace period, which is the amount of time before you begin making payments on your loans. The grace periods can vary between loan servicers, so checking those dates is important for knowing when to add loan payments to your budget and avoiding late fees.

You can usually start paying off your loan as soon as you receive the funds. But most federal student loans don’t ask you to start paying until after you graduate or your enrollment status changes. Private student loans don’t necessarily follow the same process.

If it works for your budget, you might consider making payments before they’re required. That’s because interest can still accrue, or build, on what you originally borrowed while you’re in school. It can also happen during grace periods—and even when loans are in deferment or forbearance.

Depending on the type of student loan you have, you could be responsible for paying that interest thanks to a process called capitalization. And that could have a big effect on the total amount you owe and how interest is calculated.

One strategy to pay off student loan debt quickly is to focus on paying the principal amount—or original sum borrowed—of the loan. Since interest is based on the principal balance, paying that down could reduce the amount of interest you’ll pay.

Typically, your student loan payment goes to several parts of your loan: fees, accrued interest and the principal balance, in that order. To intentionally pay down the principal amount, you’ll have to pay more than the minimum payment due.

When you make extra payments, the funds can go toward the next month’s payment, or you might be able to request that the payment goes toward your principal amount owed. This could ultimately reduce the interest owed because the total loan balance will be less. However, you’ll usually need to designate for the extra amount to be applied to the principal.

Any time you can pay more than the monthly minimum, you will help yourself get out of debt sooner and pay less interest in the long run. You can do it just once or as often as you can afford to. The same concept applies in paying down student credit cards.

Got a tax refund? Work bonus? Birthday cash? You could put any of them toward your student loan.

But if you want the benefits of this strategy, you’ll need to keep paying at least the minimum amount every month. The Department of Education says to contact your loan servicer to learn more.

Along the same lines as paying more than the minimum, paying more often could also benefit you. And lenders aren’t allowed to charge fees or penalties for prepaying as long as you make your payments on time. 

Most student loan payments are made monthly. But if it makes more sense with your budget, consider splitting your payment in half and paying twice a month instead—especially if your job pays every two weeks. Even if you’re just paying the minimum, it could help you pay off your loan faster and with less interest. That’s because, by making 26 half payments every two weeks, you would make 13 full payments in a year instead of 12 if you pay monthly.

If you have a sudden windfall or some extra money to put toward your loan payments, it can be a good strategy to tackle any high-interest loans first. One way to do that is to add additional money to the required monthly payment and designate the extra funds to the loan with the highest interest.

If you focus on paying off your high-interest loans first, you may reduce the total amount you’ll pay in the long run. Once you’ve paid off that loan, you can then tackle the loan with the next highest interest rate and so on. The method is commonly known as the debt avalanche method, and it can be used to pay off any type of debt.

Keep in mind you should only employ this for extra payments. You shouldn’t skip minimum payments on other loans because it can result in late fees and potentially impact your credit scores.

If your lender or servicer handles multiple loans for you, it’s important to tell them where to direct the extra money. Otherwise, according to the CFPB, they might decide how to allocate the funds. The CFPB has a PDF explaining more, and it includes a sample letter you can use to give your lender instructions.

Some lenders offer an interest rate reduction when you sign up for autopay, which could also save you a good amount over the life of your loan. For example, you can save 0.25 percentage points by having payments on direct federal loans automatically debited from your checking or savings account.

Bonus: You’re less likely to miss a payment when they’re automatic. And that could help you avoid late fees and damage to your credit.

There are different repayment plans that can help you manage your student loans. Because student loan interest is accrued based on the principal, adjusting your monthly payment can ultimately impact the amount you owe over the course of the loan.

When you graduate from college, you may have a number of options to choose from for federal student loans, including standard repayment plans, income-based repayment plans, graduated repayment plans and extended repayment plans.

Graduated and extended repayment plans may seem appealing, especially because they typically come with a lower monthly payment. An affordable monthly payment can be a priority for college graduates, so these plans can help with achieving that goal.

However, while graduated or extended repayment plans offer you lower monthly payments up front, these plans either extend your repayment timeline or set you up to make larger payments in the future. In both of these cases, it can mean that you will pay more over time.

If you can afford the monthly payments—and don’t qualify for or want to be on an income-based repayment plan—a standard repayment plan may result in the least overall interest. It can also help you pay off your student loans faster. If you wish to switch to a standard repayment plan, it’s a good idea to talk to your loan servicer.

The Department of Education offers a few programs that provide either assistance or loan forgiveness for students in certain fields or with lower incomes. And they could significantly lower your federal student loan debt or erase it altogether. These programs include:

• Public Service Loan Forgiveness Program: Working for a government agency or nonprofit organization as a full-time employee may allow you to qualify for forgiveness of any loan balances after making 120—or 10 years’ worth of—qualifying payments.
• Teacher Loan Forgiveness Program: Highly qualified teachers who have taught full time for five consecutive years in eligible academic settings—and meet the qualifications—may be eligible for forgiveness for part of their federal student loan balances.
• Military service: The Department of Education and the Department of Defense offer benefits to acknowledge military service, such as interest rate caps and repayment options under the Servicemembers Civil Relief Act.
• Income-Driven Repayment (IDR) plan: As you’d expect, an IDR plan offers payments on your loans based on your income. The benefit is that, after a certain number of payments have been made—over a certain period of time—the remaining balance could be forgiven.

Talking with an expert could help you figure out whether a program is right for you and help ensure you stay eligible.

Depending on the type and mix of student loans you have, you could consider ways to consolidate or refinance them. Those options might make it simpler to manage your debt by combining them into a single loan with one servicer or lender. It might also give you a chance to lower your interest rate.

There might be drawbacks though. According to the Department of Education, here are a few things to consider:

• Any unpaid interest is added to your principal balance. When consolidating your loans, the unpaid interest of your original loans is rolled into your new principal balance, which may cost you more over the life of the loan. One option is to pay the interest before you consolidate so you can save in the long run.
• Not all loans have the same interest rate. Once you consolidate, your new loan will have a new interest rate. It’s based on the principal balances and interest rates of the loans you’re consolidating. If you currently have a low interest rate on some of your loans, you may notice that the interest rate on your consolidated loan is higher. This is because it’s a weighted average.
• No credit for payments already made. If your loan payment was under an IDR plan, consolidating will eliminate any credit for payments already made toward loan forgiveness. For example, even if you’ve already made 100 qualifying payments, consolidation will reset your qualifying payments to zero.

That said, consolidation can be a helpful option for many student loan borrowers. As with any loan, it’s important to do your research before choosing to consolidate.

Repaying student debt in a timely and efficient manner can be challenging. Though you may not always be able to make extra payments, you can use student loan repayment strategies to make the most of any extra cash or opportunities you encounter. And it’s a good idea to take the first step by creating a realistic budget.

There’s no best way to pay off student loans, but there are lots of different ways. Once you find something that’s right for you, it could help you build for the future.