How to Pay Off Your Student Loans

The average full-time student at a private nonprofit four-year school will pay $14,190 in net tuition and fees this year, according to the College Board. In 2020, borrowed money covered 22% of college expenses, with students taking out 13.5% of the loan amount and parents handling 8.5%, according to Sallie Mae.

That’s a hefty burden to bear. But shoulder it too long, and the debt could expand to untenable levels. Homeownership, retirement savings and other pursuits could fall by the wayside, and even credit scores could suffer.

If you find yourself facing a student loan debt load, read on for tactics for tackling it as quickly as possible.

A payment schedule is like a light at the end of the tunnel — it’s a definite completion date that debtors are psychologically more willing to work toward. Without payoff guidelines, a nebulous finish line leads people to procrastinate. To track what you’ve paid off and what you still owe, try a spreadsheet.

Consider taking on a second job or contract work on the side to bolster your payments. And ask whether your lender offers on-time payment discounts. Check out general loan tips here.

If possible, make larger and more frequent payments early on. This shrinks the principal owed, which limits the interest accrued, which compacts the overall payback period. It’s worth checking with your loan servicers to ensure your payments are counted toward the loan principal rather than the interest.

“It is financially advantageous for borrowers to make the largest student loan payment that they can, within the context of their overall budget,” said Barry Coleman, senior director of the Student Loan Counseling Program at the National Foundation for Credit Counseling. “Smaller payments result in more interest charges over the life of the loans.”

Allowing lenders to take regular, automated chunks out of your debt load keeps you accountable to your obligations. But it also might help shorten them.

Many lenders offer lower interest rates for borrowers who agree to auto-deductions. Wells Fargo and Citizens Bank borrowers get a 0.25% rate discount, while the federal Department of Education reduces rates by the same percentage on Direct Loans paid via auto-debit.

If you have loans with variable interest rates, pay those off first, and pay as much over the minimum threshold as you can afford. Recent signals from the Fed and general economic stability suggest that rates may be headed for an upswing, which could leave you facing larger payments than you expected. So getting these loans out of the way is prudent.

“There is some risk involved with variable-rate loans, because the interest rates for these types of loans are subject to change, and the change could be an increase in the rate,” Coleman says. “If a borrower has variable-rate loans and is not comfortable with that risk, then they should work to pay them off as quickly as possible.”

Meanwhile, fixed-rate loans consistently carry the same interest requirements, so you can pay those off at a slower pace. But if you have a federal loan, tackle the unsubsidized debt first — those obligations start accruing interest as soon as you borrow, even if you haven’t graduated. (If you want to defer those interest payments, you can try adding them to the loan principal — use this handy FinAid calculator to do the math.)

If you’re able to start hacking away at your debt load while still a student, make sure you won’t be penalized — some private loans charge fees for pre-graduation payments.

Some employers offer student loan repayment programs for workers. Others are willing to pay off all or a sizable portion of the employee’s education debt up front, with the worker accepting such a deal’s effects on his or her total compensation package. Or, try proposing a commitment contract, promising to stay in your job for a specific length of time.

Companies such as Staples, Fidelity, LiveNation and other employers are working with a startup called Tuition.io to provide student loan assistance programs for employees. Participating businesses contribute to and match the payments workers make to education lenders. The purported benefits for companies include lower staff turnover, better employee engagement and recruitment advantages.

You have several options here. Some — such as income-based, pay-as-you-earn and income contingent plans — require decades of continued payment before the debt is wiped clean.

The Public Service Loan Forgiveness program, however, allows participants to shed their federal Direct loans after 120 qualifying payments. The program is designed for graduates in full-time public service jobs. These government and nonprofit positions often feature lower pay than other professions. Debtors interested in this option should submit the Department of Education’s certification form to ensure they qualify.

Paying only the minimum amount required each month on your student loan debt ultimately leaves you with a larger balance to be forgiven. But this gambit is only worthwhile if you follow through — if you abandon the job tied to the forgiveness program, you could find yourself facing a hefty interest expense on top of the remaining principal.

For more information, check out our comprehensive primer on student loan forgiveness.

If you borrowed through the Federal Perkins Loan Program, you might qualify to have a percentage of your loan canceled for each year of public service or work. Peace Corps volunteers, teachers, law enforcement officers, child services workers and members of the armed forces should contact their schools to learn more about this option, or visit the government’s online breakdown of qualifications.

If you have loans from multiple sources, you can try to roll them into a single package to take advantage of a lower interest rate. Alternately, you can try to take out a personal loan with a lower rate, use the funds to pay off the student loan bearing a higher rate, and then take your time paying off the personal loan.

An online marketplace lender such as SoFi could be a good bet. Last year, the lender hosted a public vote among its members to select a single candidate whose student loans SoFi then paid off. For more information on personal loans, read this overview.

If you’re able to roll federal loans together with private loans, you may lose the benefits associated with holding the government debt on its own. These include eligibility for income-driven repayment plans and federal student loan forgiveness programs, as well as payment terms that are generally longer than those offered on private loans.

For a specific look at consolidation, visit Supermoney’s takes on the issue here and here.

Paying off student loans quickly isn’t for everyone. According to one school of thought, it’s more valuable over the long term to invest the money in equities or other holdings, especially if your student loans have sub-10% interest rates.

But if wiping out your education debt is a priority, check out the assistance programs, loan cancellation methods, tax benefits and other tactics discussed in our overview here.