After graduating from college, you may expect to land a well-paying job right away and pay off your student loan debt quickly. But that may not be the case. According to research by One Wisconsin Institute, it takes college graduates 21.1 years to repay their student loans — and even longer for those with advanced degrees.
With such a long repayment term, you could have to pay back thousands more than you originally borrowed in interest charges, and your debt can hold you back from achieving your other goals.
If you want to get rid of your debt, here’s how to pay off student loans fast so you can move on with your life.
Should I pay off student loans early?
When you carry debt for such a long time — some borrowers carry student loan debt for 20 to 30 years — you can end up paying thousands more than you initially took out in interest. Plus, high payments can eat up a significant portion of your monthly budget. Your student loan debt can prevent you from being able to accomplish other milestones like buying a home, relocating to another state, traveling, getting married, or having children.
How to pay off student loans fast
Why pay off student loans early? Because they’re costly, and they can prevent you from being able to achieve your dreams. Eliminating your debt is key to getting the freedom you want while paying less on your loans.
If you’re determined to pay off your loans as quickly as you can, use these seven tips to get rid of your debt once and for all.
1. Sign up for automatic payments
One of the easiest ways to start paying down your debt is to sign up for automatic payments. Most lenders offer a discount when you enroll in auto debit. Depending on the lender, the discount ranges from 0.25% to 0.50%.
While that discount may sound modest, it can pay off over the long run. Over the course of your loan, the automatic payment discount could allow you to save hundreds of dollars in interest charges. When combined with other repayment strategies, it can even help you pay off your loans faster.
2. Use your cash windfalls
If you’re wondering how to pay off student loans quickly, a smart way is to strategically use your windfalls. Windfalls are any extra money you receive unexpectedly, such as a bonus from work, a raise, a cash gift, or your tax refund.
While it may be tempting to spend your windfalls on gifts or splurge on a present for yourself, the best thing you can do is to make a lump sum payment toward your student loans. By putting it toward your debt, you’ll cut down on the principal. Less interest will accrue on the loan, and you could shorten your repayment term.
3. Take advantage of the student loan interest tax deduction
Each year, you can deduct the lesser of $2,500 or the amount of interest you paid toward your student loans during the year on your taxes. You can claim the student loan interest tax deduction as an adjustment to your income without needing to itemize your deductions.
Tax deductions like the student loan interest tax deduction lower your taxable income, so you may have a smaller tax bill. Or, you could even qualify for a larger tax refund, which you can put toward your student loan payments. According to the IRS, the average tax refund for 2020 was $2,767, which could make a significant dent on your student loan balance.
4. Make bi-weekly payments
With this strategy, you split what you owe and pay half your payment every two weeks instead of making a full payment once a month.
By making bi-weekly payments, you effectively trick yourself into making an extra payment once a year toward your student loans, cutting down on your accrued interest. Over the life of your loan, making bi-weekly payments can help you save significantly.
5. Use spare change savings app to find extra money
If you have trouble finding enough money to make extra payments toward your student loans, consider signing up for a spare change app like ChangEd. These apps sync to your bank accounts, debit cards, or credit cards. Every time you make a transaction, the app rounds up the purchase to the nearest full dollar amount and deposits the difference into a separate account.
For example, let’s say you bought a cup of coffee for $1.53. The ChangEd app would round the transaction up to $2.00 and would deposit the additional $0.47 into your savings account.
Because the apps are only setting aside your spare change, you likely won’t notice the extra amounts missing. But once the savings account accrues a $100, ChangEd will automatically make an extra payment toward your student loans.
6. Ask your employer for help
As employers try to recruit and retain talented employees, some companies are offering student loan repayment assistance benefits. Like a 401(k) or 401(b) retirement plan employer match contribution, they will match your student loan payments up to a percentage of your salary each year. Employer assistance can effectively double your payments, helping you pay down your debt faster.
According to the Society for Human Resources Managers, only 4% of companies offer student loan repayment assistance benefits. However, there is growing interest as more employees struggle with student loan debt, so it’s worth asking your human resources department if it’s currently an option or could be one in the future.
7. Refinance your student loans
If you want to learn how to pay off student loans fast, one of the best ways is to take advantage of student loan refinancing. When you refinance your debt, you apply for a loan from a private lender for the amount of your existing education loans and use it to pay off your current debt. Going forward, you’ll have just one loan to manage with completely different terms, including a new interest rate and loan length.
There are many advantages to student loan refinancing. If you have good credit and stable income, you could qualify for a refinancing loan with a lower interest rate than you had on your old student loans. Over time, that lower rate could help you save money and pay off your loans ahead of schedule.
For example, let’s say you had $35,000 in student loans at 6% interest and a 20-year repayment term. By the end of your loan term, you will repay a total of $60,180; you’d pay $25,180 in interest charges on top of the principal.
If you refinanced your debt and opted for a 15-year loan and qualified for a 5% interest rate, you’d pay a total of just $49,820. Your interest charges would be only $14,820.
By refinancing your loans, you’d save $10,360, and you’d pay off your student loans five years earlier.
Repaying your student loans
While the average student borrower takes over 20 years to repay their student loans, that doesn’t mean you have to do the same. By learning how to pay off student loans fast, you can tackle your debt head-on and come up with a repayment strategy that allows you to eliminate your debt more quickly.
If you decide that student loan refinancing is right for you, use Purefy’s Compare Rates tool to get offers from top refinancing lenders all at once with a simple form, and no impact to your credit score.
