If you’re struggling to pay off your student loans, rest assured — you aren’t the only one. In 2024, more than 42 million Americans had federal student loan debt, which typically takes roughly 20 years to pay off. The average borrower has nearly $38k in federal student loans — more than double the average in 2007 — and $40k in private student loan debt.
Still, paying off student loans early is well worth the effort. It can help you achieve financial freedom, improve your credit score, and reduce the overall interest paid. Even small changes in payment habits can make a big difference.
Why Paying Off Student Loans Early Is a Smart Financial Move
Paying off student loans early can help you save on interest, free up income for other financial goals (like buying a house) and reduce stress. Here are some other reasons to make it a priority:
Bankruptcy Considerations
Student loan debt — whether it’s private student loans or federal — is often not dischargeable in bankruptcy proceedings without a separate action. Filers generally must show “undue hardship.”
In order to get them discharged, most bankruptcy courts will require you to prove three things in what’s known as the Brunner test, although this test has been “abandoned by” courts in several different circuits:
- Based on your current income and expenses, you can’t maintain a minimal standard of living for yourself and dependents if forced to pay off student loans.
- Your inability to pay is likely to continue for a significant portion of the repayment period of the student loans.
- You have made good faith efforts to repay the loans.
Tax Considerations
Even if you eventually qualify for forgiveness, you’re likely to owe taxes. Unless your federal student loan debt is discharged under the Public Service Loan Forgiveness (PSLF) program, which is only available to government and nonprofit employees, you’ll have to claim the forgiveness on your taxes in the year your student loans are forgiven as part of your gross income and pay taxes on that amount as if it were income for the year. You will generally receive a Form 1099-C, Cancellation of Debt, from your lender.
If you’re unable to make that payment to the IRS in a lump sum, you’ll have to pay fees and interest until it’s paid in full.
Retirement Considerations
The consequences of student loan repayment will continue to hold you back. According to data from the office of Federal Student Aid, borrowers between ages 50 and 61 had the highest average student loan debt at the end of 2022 — $45,600 is owed on average. About 38.9% of student loan debt belongs to borrowers between 35 and 49.
And you still want to retire, right? The later you get started investing in your 401(k) and IRA, the more money you’ll need to contribute to retire.
Best Strategies to Pay Off Your Student Loans Early
Now you see why it’s so important to pay off student loans quickly. But how do you do it? We’re here to help you figure that out with tips for how to pay off student loans early. Keep in mind that with each of these strategies, consistency and discipline are key.
- Build an emergency fund
- Take inventory of your student loan debt
- Figure out if you qualify for Public Service Loan Forgiveness
- Make a plan for repayment
- Budget for your monthly payments
- Get a side hustle
- Cut your expenses
- Go for a raise or promotion
1. Build an Emergency Fund
It may sound counterintuitive to save money instead of throwing it at your loan balance, but think about it: Emergencies come up all the time, especially in times when you’re low on cash.
By having a rainy day fund in a savings account, you won’t have to put those emergency expenses on a high-interest credit card or use the money you were going to put toward your student loans.
2. Take Inventory of Your Student Loan Debt
This tip will start with a notepad. Yes, you’ll have to get out pen and paper. Log in to all your loan servicers’ websites, and write down the full amount you owe to each. If you’re unsure who your student loan servicers are, you can use sites like Credit Sesame to run a soft credit check and see everyone you owe money to.
You’ll also need to determine if you have federal or private loans. You can check the National Student Loan Data Center for a list of your federal loans. Any loan not listed there is most likely private.
This is important, because your options for repayment will differ based on whether your loan is backed by the federal government. Federal loans generally have fixed interest rates and might offer tax-deductible interest (sometimes true as well for private loans) whereas private student loans could have variable interest rates and usually don’t offer student loan forgiveness.
3. Figure Out if You Qualify for Public Service Loan Forgiveness
Eligibility for the Public Service Loan Forgiveness (PSLF) program seems straightforward: If you’re a government or qualifying nonprofit employee, you can enroll in PSLF and have your federal student loans forgiven tax-free after 120 qualifying payments.They do not need to be consecutive.
There are important points to know about PSLF. First, those who work at for-profit organizations, labor unions or partisan political organizations are ineligible. You are eligible if you work for any U.S.-based government organizations at any level, including state, local or tribal, or for a tax-exempt 501(c)(3) non-profit or other non-profits that devote “a majority of their full-time equivalent employees to providing certain qualifying public services.” Certain federal loans, like the Perkins Loan or Family Education Loan, are also not eligible under this program. Your loans will also need to be repaid under an income-driven repayment plan or a 10-year standard repayment plan.
4. Make a Plan for Repayment
After educating yourself on your options, you’ll need a plan to pay off your loans. Think of it like plugging your destination into Google Maps. There are a few routes you can take, and one might save you a few minutes, but any route is going to go more quickly than just winging it.
We’re big fans of the debt avalanche and debt snowball methods to pay off debt.
With the debt avalanche method, you’ll start with your highest interest loan. You focus on putting extra payments toward that loan first, then once it’s paid off, you focus extra payments on your next-highest-interest loan.
If you prefer the opposite approach, taking things piece by piece, the debt snowball method starts with your loan with the lowest balance. You put extra toward that loan, and once it’s paid off, you focus on your loan with the next-lowest balance.
If you’re motivated by math, you might find that the slight savings of the debt avalanche appeals to you. If you’re motivated by quick wins, the accomplishments you’ll experience early on with the debt snowball will get you through those tough first months. Focus on your natural psychology to make the decision.
5. Budget for Your Monthly Payments
While there are several types of budgets to help you allocate your money, there’s one that stands out above the rest when you’re trying to pay off student loans faster: the zero-based budget.
The zero-based budget model allows you to prioritize your expenses. Using your income, you’ll go down your list of expenses, “paying” all of them until you’re at zero.
Why does it beat out the rest in the need for speed? While percentage-based budgeting methods tell you how much to pay off every month, the zero-based model puts you in charge of that decision.
You can put debt as high on your list of priorities as you want and contribute more if you have extra money left over.
One month you could put 30% of your take-home pay toward your loans, and the next you could put 55%.
6. Get a Side Hustle
There’s no easier way to have more money to put toward debt than making more of it. Don’t be discouraged if you have limited spare time, are confined to your home or think you have no profitable skills to offer — trust us, there are a ton of ways to make extra money.
Some of our favorites are freelance bookkeeping, dog-sitting, selling your stuff and delivering food orders. If you increase your monthly income, you’ll also increase how much you can put toward your student loan debt.
7. Cut Your Expenses
There’s only so low you can go with cutting expenses, but by trying to cut a little more every month, you’ll gain momentum — and motivation to see how close you can get to zero.
Your budget will help you examine your spending and identify options for creatively cutting your spending. Some of the most obvious places to start are with dining out and streaming subscriptions.
8. Go for a Raise or Promotion
One final tip is to focus on your career as a way of getting out of debt faster. While side gigs are great for making some quick money, your long-term wealth relies on your main gig.
That means you should ask for that raise, go for that promotion and apply for better jobs outside of your company. It’s also important to look at the long-term trajectory of any industry. If you notice employees who have been at your company for 20 years making only a few thousand dollars more than you, you may want to rethink your field — or at least budget accordingly.
Even if you don’t intend to leave your job, having an offer from another company is a powerful negotiating tool when you’re seeking better compensation and benefits.
And when you’re deciding between jobs, check to see if the company offers student loan repayment assistance. Many companies, including Fidelity, Aetna and Live Nation, now offer student loan assistance as a benefit for employees.
How Extra Payments Can Help You Pay Off Student Loans Faster
Making minimum payments will help you tread water, but you won’t cross the ocean with that mentality. The only way to pay off student debt ahead of schedule is to make payments that are above the minimum due, or make extra payments throughout the month.
Making extra payments directly toward the principal of your loan can significantly reduce the amount of interest you’ll pay over the life of your loan and shorten the repayment period. Even small additional payments can make a big difference over time and is one of the best strategies to repay student loans faster.
A tip for sticking to extra payments is to schedule them. If you’re increasing your regular monthly payment, schedule your larger payment for just before your regular payment, and select “advance due date” so you don’t get double-charged. (This same trick works for mortgages as well.)
If you think “advancing” the due date might tempt you to skip a few payments, make smaller, more frequent biweekly payments.
And lastly, plan to send any extra money from bonuses, windfalls or tax refunds straight toward your debt.
Refinancing Your Student Loans to Reduce Interest and Repayment Time
Federal student loans already have pretty low interest rates — now at around 6.53% for direct subsidized and unsubsidized loans— compared with debts like credit cards and personal loans. So lowering them won’t make a huge impact. But every little bit helps, which is why it’s smart to consider refinancing your student loans to reduce interest and repayment time.
With a good credit score and steady income, you can refinance both private and federal student loans for a potentially lower interest rate, although you will have to do so with a private lender.
Income-Driven Repayment Plans vs. Accelerated Payoff
The standard repayment term for federal student loans is 10 years, but if you have difficulty making payments, you have four main options for lowering them that take your income and expenses into account.
Note that these plans aren’t actually forgiveness programs; they’re repayment programs with a forgiveness option. Monthly payments for these plans are generally equivalent to 15% of your discretionary income — divided by 12.
With all these plans, you must resubmit your income and family size every year to determine eligibility. Married couples will have to submit their combined income.
Use a student loan calculator to determine which of these is the best for you to enroll in.
Student Loan Calculator
Even if you don’t want to use the forgiveness option, it is worth enrolling in one if you’re eligible as a failsafe against future financial hardship. Here are your major options:
Income-Based Repayment Plan (IBR)
If you took out your loan on or after July 1, 2014, you’ll pay 10% of your discretionary income monthly and apply for forgiveness after 20 years. If you took out your loan before that date, you’ll pay about 15% of your discretionary income and can apply for forgiveness after 25 years.
Income-Contingent Repayment Plan (ICR)
An income-contingent repayment plan caps your monthly payments at 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income. You will be eligible for forgiveness after 25 years. This is the only income-driven repayment choice for parent PLUS loan borrowers.
Pay as You Earn (PAYE)
This program is just like IBR but for those who took out loans after October 1, 2007, and before July 1, 2014. Essentially, you have to be a new borrower. Forgiveness is available after 20 years of payments.
Saving on a Valuable Education Plan (SAVE)
SAVE is like PAYE but for those who don’t qualify for any other program — again, the annual payment will come out to about 10% of your discretionary income. Forgiveness is available after 20 years of payments for undergraduate loans and 25 years for graduate or professional school loans.
Before you decide to embark on an income-driven repayment plan, it’s important to understand the pros and cons. The Federal Student Aid Office notes that these plans lower your monthly payments but do cause you to pay more in interest over time. And, as we stated before, if you do receive loan forgiveness, you’ll have to pay income tax on that money.
Common Mistakes to Avoid When Paying Off Student Loans Early
Paying off student loans early has plenty of benefits, but make sure you play your cards right. Mistakes in this realm can create even more money challenges, putting you further away from your financial goals. Here are common mistakes to avoid when paying off student loans early:
- Ignoring other financial priorities. Once you have your eyes on the prize, it can be difficult to think about anything else. But you should never put off other time-sensitive financial obligations simply to pay off student loans faster. Make sure you stay on top of all bills and other important savings goals at the same time.
- Not targeting high-interest loans first. One of the best tips for paying off student loans early is to start by paying off the highest-interest loans first. Interest rates have a huge impact on the overall amount you pay, so once those loans are paid off, you can move on to lower-interest loans.
- Overlooking refinancing opportunities. Refinancing can be a powerful tool if you qualify for a lower interest rate, as it can reduce your monthly payments and the total cost of your loan. However, if you have federal loans, be mindful that refinancing with a private lender means losing eligibility for federal programs like loan forgiveness and income-driven repayment plans.
- Not enrolling in auto debit. Signing up for automatic payments not only ensures you make your monthly payment on time, but most servicers also lower your rate by 0.25%.
- Not communicating with your loan servicer. While loan terms are generally fixed, you can negotiate for better repayment terms or temporary forbearance in cases of financial hardship. It’s essential to communicate openly with your servicer and explore all available options.
Though student loans can feel overwhelming, there is hope. These strategies can help you pay off loans faster and achieve your other financial goals. Remember to be consistent and disciplined, and your efforts will pay off (literally).
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