Student loan debt is a major concern for many borrowers. Outstanding student loan debt exceeds $1.64 trillion as of 2019, and the average student graduates with over $28,500 in student loan debt according to LendEDU. That’s a lot of money to owe before starting your career. Many borrowers find themselves with loan terms ranging from 10 to 30 years and may be wondering how to pay off student loans fast.
That’s a common question. After all student debt can delay recent graduates from buying a home, starting a family, saving for retirement, and more. There are plenty of incentives to rid yourself of student debt sooner rather than later.
Luckily, there are ways to pay off your student loan debt faster.
How to Pay Off Student Loans Fast in 3 Steps
If you’re looking for the fastest way to repay your student loans, using these three methods can expedite repayment.
1. Follow the Debt Avalanche Repayment Method
If you want to learn how to pay off your college loans quicker, follow the debt avalanche repayment method. With this approach, prioritize paying off the student loan with the highest interest rate. While making minimum payments on all loans, devote any additional cash for a larger payment on the high-interest loan. Continue the process until the loan is paid off. After clearing the highest-interest loan, repeat the procedure with the next high-interest loans. Continue this process until all your debt is eliminated.
This approach will help you pay off your debt faster. However, it takes discipline and strict budgeting to stick with this method. Furthermore, a strong income is essential since this method is dependent on having extra cash to make larger payments.
2. Refinance Your Student Loans
If you want to pay off your debt aggressively, student loan refinancing can be a smart strategy for you. Whether you have federal or private student loans, refinancing can help you lower your interest rates and save money.
With student loan refinancing, you take out a new loan with a new interest rate and repayment term which is used to pay off any previous federal or private student loans. The main incentive is to secure a lower interest rate on your student debt while also consolidating monthly payments.
As mentioned, refinancing can secure a lower interest rate which should save money by reducing interest payments. With lower payments, you have the option to pay more towards the principal student loan balance for faster repayment.
Student loan refinancing also offers the choice of restructuring your repayment term. By shortening the term, you can set an obligation to pay down your loans faster, just make sure it’s an affordable monthly payment.
In order to successfully refinance, qualified applicants must meet credit and income requirement. If you have great or excellent credit as well as high income you might have a better chance of getting a lower interest rate. Additionally, you will lose any federal benefits and protections after refinancing federal student loans, so keep that in mind. You are also going to want to go with a highly rated student loan refinancing company. College Ave Student Loans’ customers have given the company an average rating of 4.8 / 5 as of May 2019. And, LendEDU’s Editorial Team has historically calculated high ratings for the College Ave product suite.
3. Follow the Debt Snowball Method
The debt snowball method is similar to the debt avalanche except you prioritize loans with the smallest balances.
You make the minimum payments on all your loans and devote any extra cash towards your smallest loan balance. Once you’ve paid back the smallest loan, you move on to the loan with the next smallest balance first; the momentum can motivate you to keep paying down your loans as soon as possible.
However, there are still drawbacks. This isn’t as fast as the debt avalanche method, and it still requires strict budgeting and high income to pull off. The debt snowball method may also be more expensive than its counterpart. By deprioritizing high-interest debt, interest may accrue at a greater rate, increasing the cost of your loans.
Additional Student Loan Payoff Methods
Make Bi-Weekly Payments
Making bi-weekly payments is a great way to modestly increase the pace of student loan repayment. Instead of making one standard payment a month, you make half-payments every two weeks throughout the year.
At the end of the year, you will have made 13 payments instead of 12 payments through the standard repayment. Making that additional payment will help move repayment along, and it’s not a large financial commitment.
While it won’t break the bank, this method still requires you to both budget accordingly and stick to a more hectic repayment schedule. If it gets confusing, then there’s a chance you could miss a payment and incur a fee.
Sign up for Automatic Payments
Many lenders offer incentives to encourage borrowers to sign up for automatic payments. For example, College Ave will reduce your interest rate by 0.25%. That decrease may not sound significant. However, over the course of your loan, that interest rate discount can help you save hundreds or even thousands. And, with a lower interest rate, more of your monthly payment goes toward the principal, helping you pay off the loan faster.
Ask Your Employer for Help
Many employers know that student loans have a big impact on their employees’ lives and morale. To help retain top talent, some companies are offering student loan repayment assistance to their staff. They will match your student loan payments — up to a percentage of your salary — over the course of the year. If eligible, employer student loan repayment programs can help you pay off your debt years earlier than you expected.
Talk to your manager or human resources representative to see if your company offers any programs to help with student loan debt.
Leverage Tax Deductions and Credits
Leveraging tax deductions and credits can accelerate student loan repayment by reducing your overall tax liability and freeing up more funds for loan payments.
1. Student Loan Interest Deduction
The Student Loan Interest Deduction allows eligible borrowers to deduct up to $2,500 of interest paid on their student loans each year. This deduction applies whether you itemize your taxes or not and can lower your federal taxable income, allowing you to allocate the savings toward extra student loan payments, helping you pay off the debt faster.
2. Tax Credits for Education
For borrowers still pursuing higher education while repaying loans, tax credits like the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) can help offset education costs. Although these credits are primarily designed to reduce the costs of tuition and fees, they can free up financial resources that could be redirected toward student loan repayment.
By utilizing these tax benefits wisely, you can boost your loan payments, save on interest, and shorten your repayment term, bringing you closer to financial freedom.
Create a Repayment Plan
To create an effective repayment plan for paying off student loans quickly, you need a structured approach that helps you stay organized and focused. Here’s how to create a solid repayment strategy:
1. Assess Your Loans and Financial Situation
Start by taking a detailed inventory of your student loans. Know the total amount you owe, the interest rates, and the minimum monthly payments required for each loan. List all loans from highest to lowest interest rates, as this will guide your repayment strategy. You can find this information by logging into your loan servicer’s website. This step is essential for planning out how to allocate extra payments effectively.
2. Choose a Repayment Strategy
Once you know the details of your loans, decide which repayment strategy makes the most sense for your financial situation. You can opt for the debt avalanche method, which focuses on paying off loans with the highest interest rates first, saving you money on interest in the long run. Alternatively, the debt snowball method focuses on repaying loans with the smallest balances first, which can provide motivation as you see quick wins. Both methods can help you accelerate repayment depending on your goals and financial standing.
3. Make Extra Payments and Automate the Process
Try to pay more than the minimum amount each month, even if it’s just a small additional amount. Adding extra payments will directly reduce your principal balance, helping you pay off loans faster. Additionally, automate your payments to ensure consistency. Many lenders offer a small interest rate reduction (often around 0.25%) for setting up automatic payments, which can save you money over time.
4. Refinance for Better Terms
Consider refinancing your student loans to secure a lower interest rate, especially if you have strong credit and a stable income. Refinancing can reduce the total cost of your loan by lowering interest rates, allowing you to pay off the loan faster. However, remember that refinancing federal loans with a private lender means losing access to federal benefits such as income-driven repayment plans and forgiveness programs.
By creating a detailed repayment plan, you’ll have a clearer path toward becoming debt-free sooner than expected. Tools like College Ave’s student loan calculator can also help you visualize how different payment amounts or refinancing could impact your loan repayment.
Managing Your Student Loan Debt
If you’re overwhelmed by your student loan debt, don’t give up. You can use your frustration to motivate you to pay it off faster. If you’re strategic about it, there are several ways you can pay off your loans well before the standard 10-year repayment plan is up.
And paying off your student loans fast (and early) will help you save money on interest and make it easier for you to meet future financial goals.
