Strategies for Paying Off Student Loans Early

Written by: Kristyn Pilgrim
Updated: 4/09/20

No one wants to be in debt just after graduating, yet nearly 44.7 million of us have some form of student loan debt. If you don’t like the idea of debt hanging over your head, there are ways to pay off your student debt early.

The average American can expect to be paying off student loans for around 20 years. Not looking forward to decades of student loan payments? Here’s what you can do to clear your debt as soon as possible.

1. Create an Emergency Savings Fund

This may feel counterintuitive, but it’s very important to have an emergency savings fund available, especially if you’re in an entry-level career or living paycheck to paycheck. Paying off your student loan debt early will eventually put more money in your bank account, but it could still take several years to achieve this goal.

You’ll want to have between $500 to $1,000 on hand in case of a medical emergency, flat tire, or another unexpected cost. CNBC actually recommends having around $2,500 in the bank for emergency expenses at all times, if you can afford it. Since you can’t get your student loan payments back, even if you’re paying ahead of schedule, you’ll want to pay yourself first.

2. Set Up a Retirement Savings Plan

Another approach you should consider if you’re fresh out of college is securing your financial future. The earlier you start putting money away for retirement, the more money you’ll have when you reach retirement age. Since most retirement plans allow you to grow your investment through compound interest, you could miss out on hundreds or thousands of dollars when you retire if you don’t start saving right away.

You don’t have to put a huge chunk of money into your 401k or IRA right away. Just make sure you set some money aside to be automatically pulled from your paycheck into your retirement savings account.

3. Set Up Automatic Student Loan Payments

This may seem like a no-brainer, but it’s important to make sure all of your student loan payments are scheduled. Not only will this save you from missing a payment (and getting hit with late fees or additional interest), but it could also lower your rate by a significant amount.

Typically, automatic payments for your student loans are taken once a month, but you may be able to trigger them to go through more often. Many automated payments simply pay the minimum on your loan, but you can adjust this amount to be higher if you choose.

4. Make Additional Bi-Weekly Payments

Now that your minimum payments are set up, you’ll need to determine how much extra you can pay each pay period. No amount is too small, and every extra payment will get you closer to your goal of paying off your loans early.

Be sure to plan out your monthly budget, taking all expenses into consideration (including your savings plan). Decide how much you can comfortably afford to pay every other week to help chip away at your student loan debt and make those payments every time you get paid. You can even set calendar reminders to help you remember to make your additional payments.

5. Consider Refinancing Your Loans

If you have a good credit score and make an average or above-average income, refinancing might get you a lower interest rate on your student loans. This is typically a good idea if you have private loans (non-government funded loans), which often have higher interest rates.

Refinancing your student loans also makes repaying your loans easier, because it helps consolidate all of your loans into one payment. For instance, let’s say you currently have $50,000 in student loans at an average interest rate of 8% with 10 years remaining. If you refinance, receiving a new 10-year loan at 5%, you could save almost $10,000 in interest. Refinancing at a lower rate and the same loan terms can also lower your minimum monthly payments, allowing you to pay more without disrupting your budget.

6. Take Advantage of Workplace Assistance

Many companies offer student loan repayment assistance or other types of grants to help you pay off your student loans sooner. Often, these programs go unused, simply because employees don’t know they exist.

Talk to your HR department to find out if you’re eligible for any student loan repayment programs.

7. Stop Paying Rent (or Reduce What You Do Pay)

Rent can eat up a huge portion of your income, especially if you live in a big city. While living on your own can be an incredible experience, take advantage of living at home, if that’s an option for you. The $12,000 you spend in rent could be used to pay down your debt instead, if you can tolerate living with mom and dad for an extra year.

If moving in with family and living rent-free isn’t an option, try to reduce your rent payment as much as possible when repaying your student loans. If you work in an expensive city, consider moving to the outskirts or smaller towns outside of city limits, where you’ll often save thousands a year in rent. However, make sure you calculate the costs of moving and transportation before relocating. If a daily commute ends up costing a pretty penny, it may be wise to stick around the city a bit longer. 

Own a home? Try renting out your garage apartment or spare bedroom. Or, if you can stay with family for a year, rent out the entire house and put the rent payments toward your student loan debt.

8. Get a Second Job

If you’re serious about reducing your student loan debt, you might need to make more money. You might want to get a second job, so you can put that salary directly toward paying off your student loan debt.

You can work as many additional jobs as you’d like to help chip away at your debt. You might be a waitress or bartender, freelance as a writer or designer, or even babysit or walk pets for extra money. 

9. Plan an Aggressive Budget

To get serious about paying more on your student loans, you’ll need to take a good hard look at your finances. How much do you spend on unnecessary items like clothes, shoes, or luxuries that you want but don’t need? Do you tend to eat out or cook at home? How many nights do you spend at the bar with your friends?

Figure out where your money goes each month, and then make a plan to reign in your spending. You can do this in different ways. Some people simply need a spending limit per category (bills, food, health, luxuries, etc.) to keep them on track. Others like to use the cash method, where they pull out cash for all of their expenses, so they are not able to overspend.

While you’ll want to eliminate any spending that isn’t necessary, you need to make sure you have enough money set aside for bills, expenses, and savings when making your budget.

Relax – Student Loan Debt Isn’t the End of the World

You may hate the bundle of loans you have to repay, but it’s important to know that student loans often have much lower interest rates than most credit cards, personal loans, and even mortgages. While paying off these loans every month isn’t fun, these payments can help boost your credit score and build good credit history.

If you’re able to pay off your student loans early, congratulations! And if you want to work toward this goal, make it a priority and plan for success. We suggest consulting our repayment guide to help you pay off your student loans early that can put you on the right path.

If you’re not able to stick to your early repayment plan or have to go back to making minimum payments, don’t beat yourself up. Paying more than the minimum on your student loans when you can still help you pay off your loans faster. There’s no right way to eliminate your student loan debt, and if you can’t afford extra payments, it’s better not to overextend yourself financially.

If you’re looking for other options on paying off or managing your student loans, our team at CollegeFinance can help. All of our experts have dealt with student debt of their own and have done all the research for you. Browse our latest guides and articles for answers to any financial questions you may have, and rest assured you’re getting the best advice out there.