How to Pay Off Your Student Loans Quickly

November 22, 2022 Student Loan Refinance
How to Pay Off Your Student Loans Quickly

We all know college is expensive. Student loans are a financial burden that impacts both recent college graduates and those who graduated years ago. This is made more evident given that, as of 2020, Americans owe around $1.56 trillion in student loan debt, with $166 billion in default or delinquent.

What's more, both private and federal student loan debt is difficult to discharge in bankruptcy but in the case that you can, bankruptcy courts will require you to pass the Brunner test:

  • Show that you can't maintain a minimal standard of living based on your current income and expenses if you pay off your student loans
  • You are unable to pay for a significant portion of the repayment period of the student loans
  • You have a history of trying to repay your loans

If you do qualify for student loan forgiveness, you'll probably have to pay taxes on the amount forgiven as if it were income and if you can't pay the IRS in a lump sum, you'll have to pay fees and interest until it's paid off in full. The one exception is if your federal student loan debt is discharged under the Public Service Loan Forgiveness (PSLF) program which is available for government and nonprofit employees.

Below are our top tips for helping you pay off your student loans much more quickly.

How To Pay Off Student Loans

Pay More Than The Minimum Payment

The most effective way to pay off your student loans is to pay down your principal balance in order to pay less in overall interest. You don't have to pay hundreds over the minimum payment but pay as much over the minimum payment as you can. Any amount -- no matter how small -- helps.

Make Extra Payments

In addition to your monthly payments, making extra payments whenever you can is the next best move to help you pay down your balance. If you find yourself with extra cash, use it to make another payment.

Student loans (thankfully) don't come with prepayment penalties, but you will have to contact your student loan servicer to apply the extra payments to the current balance rather than applying it to the following month's payment.

Enroll In Autopay

Federal (and some private) student loan service providers offer an interest rate discount of 0.25% if you enroll in autopay. While it may seem like a small amount of interest, you'll be able to save a surprisingly large sum over the loan term. Additionally, autopay is a foolproof way to help you avoid missing a payment.

Build An Emergency Fund

Make sure you start building or contributing to a rainy day fund to cover your loan payments in case you are running low on cash. Have a few hundred set aside can keep you from racking up debt and being charged late fees.

Find Out If You Qualify For Public Service Loan Forgiveness

If you're a government or nonprofit employee, you might be eligible for the Public Service Loan Forgiveness (PSLF). Qualifying for forgiveness is difficult (only around 1% of applicants are accepted), but if you are able to enroll in PSLF, you can have your federal student loans forgiven tax-free after 120 payments.

Determine Your Eligibility For Income-Driven Repayment Plans

The standard repayment term for federal loans is 10 years. However, if you're having difficulty making your loan payments, you can look into repayment programs (many of which have a forgiveness option).

These plans determine eligibility by looking at your income (married couples need to submit combined income) and family size each year to determine your eligibility. You'll have to pay income taxes on the forgiven amount in a lump sum to avoid accruing fees and interest.

Use Tax Deductions And Credits

There are two types of tax deductions that help students and recent graduates with their tax deductions:

  • Student loan interest tax deduction: This allows you to reduce taxable income by up to $2,500 for interest paid on student loans in the year you're filing. To qualify, you need to meet the following requirements:   * Paid interest on a loan in your name   * Been enrolled in a degree program for which you took out the loan at least half-time   * File as a single taxpayer or as married filing jointly   * Have a modified adjusted gross income of less than $80,000 if you are filing as a single taxpayer or $160,000 if you are filing jointly   * Not be claimed as a dependant
  • Tuition and fees tax deduction: This deduction can be claimed during tax years when you paid educational expenses -- up to $4,000/year for tuition and fees.   To be eligible, you need to have paid higher education qualified expenses -- such as tuition and fees -- for yourself, your spouse, or dependant that you can claim as an exemption on your tax return.   Current students are also eligible for tax credits that can reduce your owed taxes.

Plan Out Your Loan Repayment

Make a plan on how you plan to repay your student loans. There are many ways you can go about paying it back, but two popular methods are the debt avalanche and debt snowball.

The debt avalanche method -- which focuses on savings -- has you pay off the highest interest loan first, and once it's paid off, you'll focus on the next highest interest loan.

The debt snowball method -- which focuses on quick wins -- focuses on paying off your loan with the lowest balance, and once it's paid off, you focus on paying the loan with the next-lowest balance.

Use The Standard Repayment Plan

If you're unable to make extra payments, then sticking to the standard repayment plan of 10 years (which is the usual payment term for federal student loans) is the best way to stay on track.

You do have the option to use government repayment programs such as income-based repayment, which extends your loan repayment term as much as 20 to 25 years. However, while these programs may lower your monthly payments by lengthening your repayment term, you may end up paying much more in interest -- especially if you don't qualify for loan forgiveness.

Pay Off Capitalized Interest

Interest on your student loans accrues during your grace period and during deferment and forbearance unless they are subsidized by the federal government. That interest eventually capitalizes and grows when repayment begins, so you'll end up paying interest on a larger amount.

Be sure to pay off monthly interest or make a lump-sum interest payment before your grace period or postponement ends in order to keep your balance smaller and avoid capitalization.

Budget To Make Your Payments

If you're planning to make extra payments, be sure to budget and cut down on any extra expenses. You may have to cut back on entertainment (such as streaming sites or going out to restaurants) and opt for free activities instead.

Make Extra Cash

Find ways to make some extra cash on the side. Starting a side hustle can help you increase your income. Consider gigs like driving for a ride-sharing service, delivering groceries or food, selling new or gently used clothing, renting a home through Airbnb or even taking suveys online.

If you get cash through a tax refund or bonus, put that towards your student loans.

Turn To Your Employer

Some jobs and employers can help you pay off or forgive your student loans as an employee benefit. It's always worth asking your employer if this is an added perk.

You can also ask your employer if you are eligible for a raise or promotion, which can also help you out long term with paying off your student loans.

Refinance Your Loans

Finally, student loan refinancing might be the final factor in paying off your student loan debt faster. This is an especially great option if you have good or excellent credit and you've had some time to become financially stable.

Refinancing your student loan allows you to consolidate your multiple student loans into one new loan at a lower interest rate with a private lender, potentially have a shorter loan term, so you can use it to pay off the original loan. Even if you end up with a higher monthly payment, you can still pay off your debt faster, save on interest, and have one payment as opposed to multiple.

However, if you are using federal loan benefits such as student loan forgiveness or income-driven repayment, you won't have access to these when you refinance.

Not sure where to begin? Turn to our reputable student loan refinancing services here:

Splash Financial
Year Founded
2017
Credit Score Required
650
BBB Rating
A+
Minimum Loan Amount
$5,000
Max Loan Amount
$750,000
Minimum APR
2.75%
Maximum APR
8.9%
Trustpilot Rating
4.8/5.0
Trustpilot Reviews
534
Credible Student Loan Refinance
Year Founded
2012
Credit Score Required
650
BBB Rating
A+
Minimum Loan Amount
-
Max Loan Amount
-
Minimum APR
2.23%
Maximum APR
8.72%
Trustpilot Rating
4.6/5.0
Trustpilot Reviews
5261
Elfi
Year Founded
2015
Credit Score Required
650
BBB Rating
A
Minimum Loan Amount
-
Max Loan Amount
-
Minimum APR
-
Maximum APR
-
Trustpilot Rating
4.9/5.0
Trustpilot Reviews
1769
Citizens Bank
Year Founded
1828
Credit Score Required
620
BBB Rating
A+
Minimum Loan Amount
-
Max Loan Amount
-
Minimum APR
-
Maximum APR
-
Trustpilot Rating
4.4/5.0
Trustpilot Reviews
64

How do I pay off my student loans quickly and in full?

  • Pay more than the minimum payment
  • Make extra payments
  • Apply for student loan forgiveness
  • Take advantage of tax deductions and credits
  • Pay off capitalized interest
  • Refinance your student loans

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