Essential Tips for How to Pay Off Student Loans Fast

You've gotten your degree, you're making money, and now it's time to give something back — your student loans. Paying back student loans can be a pain, but it's not as difficult as you might think. Start early, think far ahead, and follow the basic steps outlined in this article, and you could be well on your way to paying off student loans.

Find out the best strategies for paying back student loans fast.

Table of Contents

• How to Pay Off Student Loans Fast 

• Pay More than the Minimum Payment

• Pay Back Student Loans Early by Working a Job in College
• Consider Refinancing Your Student Loans
  • Student Loan Calculator
• Target Capitalized Interest When Paying Back Student Loans
• Talk to Your Employer About Student Loan Assistance
• Research Possible Discounts Offered by Lenders
• Exploit Tax Deductions Offered on Student Loan Interest
• Other Options If You Can’t Pay or Need Help Paying Off Student Loans
  • Federal Student Loan Repayments
  • Student Loan Deferment
  • Student Loan Forbearance

• Are Student Loans Automatically Forgiven After 25 Years?

• When Will Student Loan Payments Resume?

• What Happens If You Cannot Pay Back Student Loans?

• The Bottom Line on Student Loan Repayment

How to Pay Off Student Loans Fast

There are a variety of strategies for how to pay back student loans in a timely, and ideally, fast fashion. There are also strategies that can help you manage your student loan debt if you’re having trouble repaying them in a timely manner.

Here we’ll look at both the best way to pay off student loans and options you can pursue to help better manage your student loan repayment schedule.

1. Pay More than the Minimum Payment

Like with credit card payments, it’s advisable to pay more than the monthly minimum when it comes to paying off student loans. A good method to ensure this is to set up automatic payments and set the payment above the minimum, so you won’t have to remember each month to take this step. You won’t incur a penalty for paying back student loans early or paying more than the monthly minimum. 

However, there is one thing to be aware of about student loan prepayment. Often, student loan companies who collect your payments, might apply the extra amount above the minimum to the next month’s payment. When this occurs, it moves up your due date and won’t assist you in paying off student loans faster. The solution to this problem is to contact your student loan provider and tell them to apply your overpayments to your current balance, while maintaining next month’s due date as scheduled.

Making payments above the minimum and reducing the principal of your student loan will cut down on the total payoff time. What’s more, when you reduce the principal student loan balance, you’ll also reduce the length of the loan period and, consequently, the interest incurred on the loan.

2. Pay Back Student Loans Early by Working a Job in College

Though classes typically take up most of a college student’s time, you can definitely schedule your courses to free up certain days of the week to take on part-time employment and earn money. By getting a part-time job while attending college, you can get a jump start on paying back student loans. 

Let’s say, for example, you take out a student loan worth $30,000, at a 6% interest rate, with a repayment term of 10 years. In order to achieve your student loan payback, you will have to pay approximately $333.06 a month to pay off the loan in 10 years; and you won’t merely be paying back the $30,000 principal you borrowed — you’ll pay an estimated $9,967.38 in total interest costs on the loan. However, if you work a part-time job during college, earning $600 a month from it, and you pay $600 a month towards your student loan, you’d pay off your loan in less than five years (roughly four years and a little over nine months). Using earnings from part-time work during college is one of the better methods for how to pay off student loans faster.

3. Consider Refinancing Your Student Loans

Pursuing this strategy is one of many solid ways to pay off student loans fast while, at the same time, not having to make extra payments. Refinancing student loans is a good option because it can take several student loans and combine them into a single private loan for you to pay back. If you want to refinance a student loan, one of the key conditions you’ll want is the new, single private loan to have a lower interest rate. If you can, try to get your new loan term to be shorter than the loan terms on your original student loans. While this shortened timespan to pay back your loan typically increases your monthly loan payments, it also means you will end up paying off student loans faster than with your original loans.

Let’s refer back to the previous example of a $30,000 student loan, at a 6% interest rate, with monthly payments of $333.06 for a term of 10 years, If you refinance your student loan here, with a 4% interest rate and a shortened loan term of five years, you will save approximately $6,817.71 in interest costs on your refinanced student loan: The interest cost of the old student loan was $9,967.45 versus $3,149.74 for the new refinanced student loan. The only downside is that your monthly student loan payment will increase from $333.06 to $552.50, but the benefits of paying off your student loans faster is hard to argue with.

Below is the example, including the inputs and results of a student loan repayment calculator:

Therefore, if you have good credit and you can get a lower interest rate, then refinancing your student loans could be an ideal option to pay back student loans quickly.

4. Target Capitalized Interest When Paying Back Student Loans

If you got a student loan that wasn’t subsidized by the federal government, then interest will accumulate on the loan’s principal while you’re attending college, as well as during your grace period (typically six months, but it depends on the lender), and during periods of student loan deferment and forbearance. Interest capitalization occurs when unpaid interest is tacked on to the principal amount of your student loan. This increases the size of your student loan’s principal balance and then you’ll be charged interest on the increased principal, resulting in higher interest costs. From a financial standpoint, it’s a brilliant mechanism; from a student borrower’s standpoint, it's more than frustrating.

The move here, then, is to think about making monthly interest payments while interest is accumulating to prevent capitalization. Another move you can make is pay a lump-sum interest payment before your grace period or postponement period is over. Now, doing this will not instantly accelerate the student loan payback process, however, it will lead to a smaller balance for you to pay off.

5. Talk to Your Employer About Student Loan Assistance

With the explosion of student loans and student loan debt, it has become increasingly common for companies to offer student loan repayment assistance and college tuition reimbursement. Companies that offer these student loan payback programs not only can attract more applicants. Companies can benefit from tax implications. Employers can deduct the expense of student loan and tuition assistance on their end, leading to a potentially considerable tax benefit.

At the same time, the employees looking to pay back student loans get their own tax benefits from these assistance programs. Before the passage of the CARES Act, employer student loan repayment assistance was considered to be wages. Therefore, employees had to pay income taxes on them, and employers had to pay payroll taxes on any student loan repayment assistance paid to employees. 

After the passage of the CARES Act, employers can contribute up to $5,250 toward an employee’s college tuition or student loan repayment assistance through 2025 and reap advantageous tax benefits. Now, the student loan repayment assistance is not considered taxable income for the employee, which is a huge win for workers who want to carry on with higher education and still continue to work.

6. Research Possible Discounts Offered by Lenders

It may come as a surprise, but some student loan lenders offer discounts for borrowers for various reasons. One common area where you could get a discount when paying back student loans is by simply enrolling in automatic payments for your student loan repayment plan. Believe it or not, federal student loan providers offer a quarter-point interest rate deduction on your loan if you allow them to automatically deduct student loan repayments from your bank account. What’s more, many private student loan lenders, not just federal-affiliated ones, offer this same discount as well. Though the discount is usually small, why not take anything you can get when you’re looking for ways of how to pay off student loans fast.

7. Exploit Tax Deductions Offered on Student Loan Interest

You might think taxes are nothing but outright theft committed by the government, but you’d be missing out on all the potential tax benefits and loopholes available if you have such a dark view. When it comes to paying back student loans, the federal government can be your friend, by offering a student loan interest deduction on your taxes for interest paid during the year on qualified student loans. This tax law enables you to deduct up to $2,500, though it depends on your adjusted gross income (AGI). What’s even better, this tax deduction is available for both federal and private student loans.

In order to claim this tax deduction, you must be legally required to pay interest on a qualified student loan; plus, your filing status for taxes cannot be “married filing separately”. Other qualifications for this tax deduction program include adjusted gross income limits, which the government establishes yearly. 

Another potential tax-related benefit for paying back student loans is if you’re eligible for a tax credit. You may be eligible for tax credits if you are presently paying tuition, whether you’re attending undergraduate school or grad school. Although there aren’t any tax credits related to student loan repayment, it is still worth looking into if you’re currently attending college or are considering going back to school sometime in the near future.

Other Options If You Can’t Pay or Need Help Paying Off Student Loans

So far, we’ve discussed various strategies for how to pay off student loans fast. But for many student loan borrowers, the problem isn’t paying the loan off fast — it may be paying it back at all. Fortunately, you have a multitude of options to investigate to get help in paying off student loans, including student loan deferment, student loan forbearance, and many more.

Federal Student Loan Repayments

The federal government offers student loan repayment plans that you can apply for. One common one is its Income-Driven Repayment (IDR) Plan. The income-driven repayment (IDR) plans are devised to make your student loan debt more manageable by lowering your monthly payment amount. If you want to make reduced monthly loan payments or if your outstanding federal student loan debt accounts for a significant part of your annual income, then some of the programs below may be relevant for you:

• Revised Pay As You Earn Repayment Plan (REPAYE) 

• Pay As You Earn Repayment Plan (PAYE) 

• Income-Based Repayment Plan (IBR) 

• Income-Contingent Repayment Plan (ICR Plan)

Federal student loan repayments can be very useful, but they also have many qualifications to meet. Thus, do your homework and review all the requirements and possible drawbacks of taking this route.

Student Loan Deferment

If you’re having difficulty in paying back student loans in a timely fashion, then you might want to investigate getting a student loan deferment. The way a student loan deferment works is that you get a temporary postponement of payment on your student loan, though it’s only allowed under specific circumstances.

While getting payments for your student loans postponed can offer a much-needed breathing space, it’s important to figure out whether interest will accrue during the period when your loan payments are deferred. Some student loan deferment programs do not make you responsible for interest accrued, while others do. Thus, if you don’t pay any interest accrued during the deferment period, that interest may be added to the principal balance — aka the interest will be capitalized (mentioned earlier).

Student Loan Forbearance

With student loan forbearance, student loan borrowers will not have to make a payment, or you can reduce your payments for a temporary period of time. Although this can be very helpful when you’re in dire financial straits, student loan forbearance will likely not help you make any progress toward student loan forgiveness or paying back student loans.

While student loan forbearance sounds almost exactly like student loan deferment, the main difference is that with deferment, you may be able to avoid being responsible for paying for the interest accrued during the period of deferment. With student loan forbearance, there is no possibility of not paying the accrued interest — you will be obligated to pay the interest as it is accrued during the period of forbearance or allow the interest to accrue, not pay it, and then have to pay it once the interest has been capitalized, i.e., when the interest accrued has been added to your student loan principal balance.

Are Student Loans Automatically Forgiven After 25 Years?

The idea that student loans are automatically forgiven after 25 years is rooted in the nuances of certain U.S. federal student loan repayment plans, but it's important to understand the specifics. Under the Department of Education's Income-Driven Repayment (IDR) plans, borrowers might be eligible for loan forgiveness after making 20 to 25 years of qualifying monthly payments, depending on the specific IDR plan. These plans include the Income-Based Repayment (IBR), Pay As You Earn (PAYE), and the Revised Pay As You Earn (REPAYE) plans. For those under the IBR plan (for borrowers who took out loans before July 1, 2014), forgiveness occurs after 25 years. Meanwhile, for PAYE and the IBR (for those borrowing after July 1, 2014), the period is 20 years. For REPAYE, the forgiveness timeline is 20 years for undergraduate loans and 25 years for graduate or professional study loans.

However, there are essential details to note. First, the "forgiveness" isn't automatic in the sense that borrowers need to apply for it once they've reached their qualifying payments. Also, while the remaining loan balance is forgiven after the designated period, under current tax law, the forgiven amount might be considered taxable income, which could result in a hefty tax bill for the borrower in the year of forgiveness. This tax implication is a significant consideration for borrowers who might be looking forward to loan forgiveness. However, legislation and policies related to student loans are subject to change, so borrowers should stay informed and might consider consulting a financial advisor or tax professional regarding their specific situation.

When Will Student Loan Payments Resume?

The Department of Education’s Covid-19 relief for student loans is ending this year. Student loan interest will resume starting on September 1, 2023, and payments will be due starting in October. 

Roughly 44 million borrowers in the US were affected by the student loan payment pause, which initially began in March 2020 at the onset of the Covid-19 pandemic. The Biden administration extended the pause for the eighth time last November but will not do so again as part of the bipartisan debt ceiling deal approved by Congress.

What Happens If You Cannot Pay Back Student Loans?

If a borrower cannot pay back their student loans, several consequences can unfold, which vary based on the type of loan (federal or private) and the duration of the delinquency:

• Delinquency: As soon as you miss a student loan payment, your loan becomes delinquent. This status continues until you make up the missed payment, change your repayment plan, or obtain a deferment or forbearance. For federal loans, delinquency will be reported to the credit bureaus after 90 days.
• Credit Score Impact: Missed payments and delinquencies on student loans can negatively impact your credit score. A lower credit score can make it difficult for you to secure other types of financing, such as mortgages or car loans, and may result in higher interest rates when you do obtain credit.
• Default: If the delinquency continues, your loan may go into default. For federal student loans, this generally happens after 270 days of missed payments. Private loans might go into default sooner, depending on the loan agreement.
• Increased Debt: Once in default, the entire loan balance (including interest) becomes due immediately. The federal government might also charge additional fees, increasing the total debt amount.
• Wage Garnishment and Tax Refunds: If you default on federal student loans, the government has the right to garnish your wages (take a portion directly from your paycheck) without a court order. They can also withhold federal tax refunds or other federal benefits.
• Legal Consequences: Private lenders can take legal action to recover the debt. If they win a lawsuit against you, they might have the right to garnish your wages or levy your bank account, depending on state laws.
• Loss of Benefits: For federal student loans, defaulting means you lose out on potential benefits like deferment, forbearance, and access to other repayment plans. You also become ineligible for additional federal student aid.
• Loan Rehabilitation: For federal loans, one way out of default is through a loan rehabilitation program, where borrowers must agree in writing to make nine voluntary, reasonable, and affordable monthly payments within ten consecutive months.

If someone is struggling to make student loan payments, it's essential to act early. For federal student loans, there are several repayment options, including Income-Driven Repayment plans, which can adjust payments based on income and family size. Deferment or forbearance can also be an option, allowing borrowers to temporarily stop or reduce payments. With private loans, communication with the lender is crucial; while they may not offer as many options as federal loans, they might be willing to discuss modifications to the repayment plan.

The Bottom Line on Student Loan Repayment

With the exorbitant costs of college seemingly rising year after year, student loans are becoming nearly ubiquitous for college students. Student loans can enable you to get the higher education you desire, but their shadow can loom over you long after you graduate college. Armed with the strategies outlined here, you have many options to help deal with student loan payback. And, if you want to avoid student loans at all costs, there is always the possibility of getting a college scholarship.

BrokeScholar has a massive library of college scholarships that you can apply to, and you can even search for them by field of study. Some scholarships merely reduce tuition costs, but others can eliminate them entirely. Paying for college does not have to be a stressful nightmare when you’re equipped with the right tools and smart strategies.