Savanna Hoffman
Student loan debt is a burden that many graduates carry for years, but there are ways to pay off student loans faster and save money. Understanding the unique traits of student loans can help borrowers make more informed financial decisions. Student loan interest begins to accrue daily, in most cases, from the day the loans are disbursed. Therefore, delaying or lowering payments will increase the amount of interest paid over time. Making extra payments, even while still in school, can save time and interest, and there are several strategies to help manage this.
| Characteristics | Values |
|---|---|
| Extra payments | Can help pay off student loans faster and save money on interest |
| Refinancing | Can save on interest on private loans |
| Lump-sum payments | Can save money |
| Payment allocation | Paying off higher-interest loans first can save money |
| Payment due date | Advancing the due date won't help pay off loans faster |
| Overpayments | Can be applied to the principal balance |
| Payment plans | The standard repayment plan is the fastest way to pay off federal loans, but it may result in hefty monthly payments |
| Income-driven repayment (IDR) plans | Can lower monthly payments but extend the payoff timeline |
| Loan forgiveness | Certain professions may qualify for loan forgiveness or repayment programs |
| Autopay | Signing up for autopay can lower the interest rate |
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Extra payments
Timing of Extra Payments
You can make an additional payment at any point during the month or make a lump-sum payment on the due date. Either strategy can help you save money. For example, if you owe $10,000 with a 4.5% interest rate, paying an extra $100 every month on a standard 10-year repayment plan could make you debt-free about five and a half years ahead of schedule.
Biweekly Payments
Instead of making one full monthly payment, you can pay half your bill every two weeks. This is called a "biweekly" payment. By doing this, you will make an extra payment each year, reducing your repayment schedule and the interest costs.
Autopay Discounts
Signing up for autopay can lower your student loan interest rate, ensuring that more of your money goes toward your principal balance. Federal student loan servicers typically offer a quarter-point interest rate discount if they automatically deduct payments from your bank account. Many private lenders also offer similar auto-pay deductions.
Applying Extra Payments
To get the most benefit from your extra payments, ensure that they are applied to your highest-interest-rate loans first. This will help you save money on interest and reduce your total loan cost.
No Penalty for Early Payment
There is no penalty for paying off student loans early or paying more than the minimum. However, student loan servicers may use your extra payment to advance your due date, applying the extra amount to the next month's payment. To avoid this, you can request that your extra payments be applied to the principal amount.
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Refinancing
To qualify for refinancing, you will typically need a good credit score—at least in the high 600s, and preferably in the mid-700s. You will also need a stable income that can comfortably cover your expenses, student loan payments, and other debts.
If you meet the credit and income requirements, you can then compare lenders and their rates, requirements, and features. You can also use a student loan refinance calculator to estimate your savings. It is important to consider not just the rates but also the repayment terms and monthly payments.
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Autopay
Benefits of Autopay
- Lower interest rates: Signing up for autopay can lower your student loan interest rate by a quarter of a percent. While the savings from this discount may be minimal, it can still help when combined with other strategies. For example, a $10,000 loan with a 4.50% interest rate would save you about $144 overall on a 10-year repayment plan.
- Convenience and peace of mind: Autopay eliminates the worry of missing a payment or having to log in manually each month. This ensures you always make your payments on time, provided you have sufficient funds in your account.
- Extra payments: With autopay, you have the option to pay more than the minimum monthly payment. You can enter the additional amount to be debited for the loan you want to pay off faster. This feature allows you to accelerate your repayment and save on overall interest.
Cancelling Autopay
If you decide to cancel autopay in the future and resume manual payments, you can do so at any time by logging into your online account. Cancelling autopay will result in the interest rate returning to the original rate.
In conclusion, autopay is a useful tool that can help you manage your student loan payments more efficiently and potentially pay off your loans faster. By taking advantage of the interest rate discount and the convenience of automatic payments, you can make progress towards becoming debt-free.
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Standard repayment plans
The standard repayment plan is the basic plan for repaying federal student loans. Borrowers are automatically placed on this plan when they start repayment, unless they choose a different option. The repayment length is typically 10 years, with the total debt (plus interest) split into 120 monthly instalments. The minimum monthly payment is $50.
The standard repayment plan may be suitable for those who want to limit the total amount they pay and finish repayment quickly. While the monthly payments under this plan may be larger than those of other plans, borrowers will pay the least interest overall.
From 2026, the standard repayment plan will be modified, with a term of 10, 15, 20, or 25 years, depending on the borrower's federal student loan balance. Borrowers who take out new federal loans on or after July 1, 2026, will only have access to the modified standard plan and the Repayment Assistance Plan (RAP). RAP caps monthly payments based on adjusted gross income and family size and offers forgiveness of remaining debt after 30 years of payments.
If you can make extra payments, staying on the standard repayment plan is the fastest way to pay off federal loans. For example, paying an extra $100 every month on a standard 10-year repayment plan can help you become debt-free about five and a half years ahead of schedule.
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Loan forgiveness
One way to pay off student loans faster is to make extra payments or refinance to save on interest on private loans. However, if you are unable to make extra payments, there are other options available to help you manage your debt. One option is to stay on the standard repayment plan, which splits your total debt (plus interest) into 120 monthly instalments spread over 10 years. This is the fastest way to pay off federal loans if you are unable to make extra payments.
Another option is to enrol in an income-driven repayment (IDR) plan, which can lower your monthly payment based on your income and family size. IDR plans cap your monthly payments as a percentage of your income and can extend the payoff timeline up to 20 or 25 years, at which point your remaining debt may be forgiven. However, it's important to note that only federal student loans managed by the Department of Education (ED) qualify for the one-time IDR adjustment. Borrowers with ED-held loans that have accumulated at least 20 or 25 years of repayment status will be eligible for automatic forgiveness, even if they are not currently on an IDR plan.
Additionally, public service employees may be eligible for the PSLF (Public Service Loan Forgiveness) Program, which forgives qualifying federal student loans after 120 qualifying payments (10 years) while working for a qualifying public service employer. Qualifying employers include government, military, state, local, tribal, and certain non-profit organizations.
It's important to carefully review the requirements and eligibility criteria for any loan forgiveness program and seek official guidance from the Department of Education or the Consumer Financial Protection Bureau.
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Frequently asked questions
Students can pay off their loans faster by making extra payments, refinancing to save on interest on private loans, or consolidating student loans.
Students can also pay off their loans faster by signing up for autopay to lower their interest rate, paying off higher-interest loans first, or sticking to the standard repayment plan.
Yes, students can also consider making payments during their grace period or while still in school, paying a little extra each month, or dedicating their tax refund to paying off their student loan debt.
