Pay Off Student Loans Early: Benefits And Tips

Paying off student loans early can help you save money on interest.

First, look at the rest of your finances to ensure you can afford this decision.

If your finances are ready for an emergency, you have a strong retirement plan, and you don’t have other debt with higher interest rates, paying off your student loans early could be right for you.

In this guide:

• Should I pay off my student loans early?
• How to pay off student loans early
• Other strategies to prepay student loans
• Benefits of paying off your student loans early
• FAQ

Should I pay off my student loans early?

Paying off student loans early can save you money on interest and free up your finances for other goals. 

However, accelerating student debt repayment shouldn’t be a priority in every situation. 

Ask yourself the following questions to decide whether prepaying your student loans is right for you. 

Are your student loans federal or private?

Federal loans come from the Department of Education, and you can view your balances in your Federal Student Aid account.

On the other hand, private student loans come from private lenders, such as banks and credit unions. You can track down your balances on your loan statements or by ordering a free copy of your credit report from AnnualCreditReport.com. 

Federal student loans are eligible for protections, including forbearance, deferment, income-driven repayment, and President Biden’s loan forgiveness initiative if it succeeds in court. They also come with low, fixed interest rates. 

Because of these protections, paying off federal student loans early should be lower on your priority list than paying off private student loans. Private loans often have higher interest rates (which may be variable), and they’re not eligible for federal repayment plans or forgiveness programs. 

What are the interest rates on your student loans? 

If your rates are high, paying off your student loans early could be wise. 

However, if your rates are low—below 5%, for example—you might get a better return on investment from investing your extra cash in a retirement savings account or another investment vehicle.

You can view your rates by logging in to your online account with your loan servicer, contacting your servicer, or checking your monthly statements. 

What other debt do you owe? 

If you owe high-interest debt—credit cards, for instance—it makes sense to prioritize paying that off before making extra student loan payments.

Your student loans likely have lower interest rates and more flexible repayment options. 

Do you have an emergency fund? 

If not, try to save enough cash to cover three to six months’ worth of expenses before you prepay your student loans. 

Can you afford extra payments? 

If you’re struggling to pay your rent, utilities, or other bills, focus on those essentials before you speed up student loan repayment. 

How to pay off student loans early

If you want to pay off your student loans early, here are the steps to take:

Step 1: Review your budget

It’s much easier to find extra money to put toward student loan debt when you have an idea of where your finances stand. 

Review your regular spending for places you can cut back, and apply the savings toward paying more than the minimum on your student debt. 

Create a budget that includes extra student loan payments, and stick to it. You might also consider working a side gig and putting the extra income toward your student debt. 

Step 2: Decide which loans to pay off first

If you owe multiple student loans, review your balances, and decide in which order you want to pay them. 

You could use the debt avalanche method, which targets the loans with the highest interest rates first, or the debt snowball method, which targets the loans with the smallest balances. 

The debt avalanche will save you the most in interest, but the debt snowball can motivate you to keep paying as you pay off each small balance in full.

Step 3: Make extra payments through your online accounts

You can make payments through accounts on your loan servicer’s website. You may also be able to make payments through your Federal Student Aid dashboard. 

Your lender will withdraw these payments from your bank account, so ensure you have sufficient funds. You may also have the option to make payments via mail or over the phone. 

Step 4: Tell your loan servicer how to apply your extra payments 

If you have multiple loans with the same servicer, be sure to let the servicer know to which loan to apply your extra payments.

Ask it to apply the payment to your principal balance rather than advance your due date, aka apply it for future bills. This option may be available in your online payment portal. If not, contact your loan servicer. 

Step 5: Sign up for biweekly payments

Setting up biweekly, rather than monthly, payments is another easy way to accelerate your payoff date. 

Paying half your monthly payment every two weeks will amount to a whole month’s additional payment each year with little extra effort. 

Step 6: Keep going until your loans are paid off

Once you’ve paid off a student loan in full, move on to the next loan on your list. 

Use a student loan calculator to determine how much you need to pay monthly to reach your debt repayment goals. Ask your loan servicer to provide a paid-in-full statement, and check your credit report to ensure your lender has closed your loan account. 

Unlike some other loans, student loans don’t come with prepayment penalties. Whether your loans are federal or private, you don’t need to worry about your lender charging a fee to pay them off ahead of schedule. 

Other strategies to prepay student loans 

Making extra payments isn’t the only way to pay off your student loans early. 

These strategies could help you get out of debt sooner.

Refinance your student loans

When you refinance student loans, you could get a lower interest rate, allowing more of your extra payments to go toward the principal. 

Plus, with a lower rate, you might be able to handle a shorter term. Be cautious about refinancing federal student loans. Doing so means forfeiting access to income-driven repayment plans, student loan forgiveness programs, and other federal benefits. 

Work for a company that offers student loan repayment benefits

According to a 2021 survey by the Employee Benefit Research Institute, 17% of companies offer student loan assistance benefits, and another 31% plan to offer them in the future.  

Use student loan forgiveness

Depending on your profession and other factors, you might be eligible for federal student loan forgiveness. Programs including Public Service Loan Forgiveness and Teacher Loan Forgiveness can help eliminate your debt after a certain period.

Check out our guide to paying off student loans fast for more strategies. 

Benefits of paying off your student loans early

Is it wise to pay off student loans early? In many cases, yes. 

Paying off your student loans early can save money and free up your finances to focus on other goals. Here are the main benefits of paying off your debt as quickly as possible. 

Save on interest charges

The longer you pay interest, the more it costs. If you can pay off your student loans early, you could save thousands of dollars. 

Take a look at your potential savings if you owe $30,000 in student loans at a 6% interest rate: 

	10-year repayment term	7-year repayment term	5-year repayment term
Total interest paid	$9,967	$6,814	$4,799

Lower your debt-to-income ratio

As you pay off your student loans, your debt-to-income ratio (DTI) falls. This opens you up to more opportunities. 

If you want to buy a home, for instance, your DTI matters. Lenders prefer a low DTI when evaluating loan applicants. 

Free up more money for other goals 

You might be paying hundreds of dollars to your student loan servicer every month. If you can say goodbye to that monthly bill, you’ll have more cash each month to devote elsewhere. 

You could build your emergency fund, save for retirement, invest in the stock market, put it toward a down payment on a home, or even take a vacation. Getting rid of your student debt will allow you to focus on other financial goals.

Gain peace of mind

For many people, debt can cause stress and worry. If you pay off your student loans, you can be debt-free sooner—and enjoy the peace of mind that comes with knowing you have one fewer obligation.

FAQ

Can you pay off federal student loans early?

You can pay off federal student loans early without penalty by making extra payments. Sign in to your loan servicer’s account to make additional payments from your bank account. If your loan servicer is Nelnet or Great Lakes, you might be able to make payments through your Federal Student Aid account. 

When you make an extra payment, instruct your loan servicer to apply it to your principal balance instead of advancing your due date. 

Can you pay off private student loans early?

You can often pay off private student loans early without penalty. Log in to your loan servicer’s website to make extra payments. 

Contact your original lender or review your credit report if you’re not sure who’s servicing your loan. As with prepaying federal loans, consider asking your loan servicer to apply your extra payments to your loan principal.

Are there fees for paying off my student loans early?

You won’t pay fees if you pay off your student loans early. Neither the federal government nor private lenders charge penalties to prepay your federal or private student loans. 

However, you may need to tell your student loan servicer you want your extra payments applied to the principal balance of a specific loan, such as the one with the highest interest rate or smallest balance. 

Without this instruction, your loan servicer might save it for the next month’s payment, which won’t help you get out of debt ahead of schedule.