When you have a large amount of student debt, it can be easy to get overwhelmed. After all, you could have a repayment period that lasts anywhere from 10 to 30 years.
But that doesn’t mean you’re at the mercy of your loan. In fact, if you’re willing to do a bit of leg work, there are many strategies that you can use to save money and get out of debt faster. Here’s how to pay off large student loans quickly.
- Pay interest before repayment starts
- Stick with a short repayment plan
- Make extra payments
- Prioritize high-interest loans first
- Automate payments
- Consider refinancing
- Research repayment programs
- Look into forgiveness
- Keep other costs low
1. Pay interest before repayment starts
Many student loans won’t require repayment until after the grace period ends, which is often six months after you leave school. But that doesn’t mean your loans aren’t costing you — most student loans will accrue interest while you’re in school and during other periods of nonpayment.
Once you enter repayment, that interest will be capitalized — meaning it’s added to your principal balance. Your loan balance will grow, and you’ll essentially begin accruing interest on your interest.
To avoid this, pay off any accrued interest before it capitalizes. If you can afford it, making interest-only payments in school can be a great way to save money on your loans.
| Note: Direct Subsidized Loans are exceptions to this rule. The government will pay the interest costs while you’re in school, during your grace period, and during other deferment periods. |
2. Stick with a short repayment plan
In general, the faster you pay off large student loans, the less you’ll pay overall. That’s because you won’t pay interest over an extended period of time. However, a shorter repayment plan comes with a tradeoff: You’ll pay more per month than you would with a longer term.
Let’s say you have a $70,000 student loan with a 5.00% interest rate. Here’s what your repayment would look like in two different scenarios.
| 10-year term | 7-year term | |
|---|---|---|
| Monthly payment | $742 | $989 |
| Interest costs | $19,095 | $13,107 |
| Total paid | $89,095 | $83,107 |
In the example above, cutting three years off the loan term could save you about $6,000. If you can afford to make higher monthly payments, you could save thousands in the long run.
3. Make extra payments
Even if you can’t afford a shorter term, you can still make extra payments toward your student debt whenever possible. Whether it’s an extra $50 a month or putting your recent work bonus toward your loans, every extra dollar you pay now could save you later.
You’ll likely have to specify how your lender applies excess payments. Some lenders may apply extra cash to next month’s payment, but you might want the money to go directly to your loan’s principal or toward your highest-interest debt. Check your loan servicer’s site or call them for more details about how extra payments are applied.
4. Prioritize high-interest loans first
Interest is typically the most influential factor when it comes to the cost of borrowing, so prioritizing high-interest loans first can help you save money — especially if you’re dealing with large student loans. This is called the debt avalanche method.
To take advantage of this, list the interest rates for each of your student loans and rank them from highest to lowest. Continue making minimum payments on all your debts, but put any extra money toward your highest-interest loan. Once it’s paid off, repeat the process with the next highest rate, and continue until your loans are gone.
5. Automate payments
Student loans require you to make monthly payments, so signing up for autopay can simplify the process. But it can also help you save money in a few key ways:
- Most lenders offer a rate discount of 0.25 percentage points just for signing up
- You’ll avoid late fees and missed payments, which can cut into your progress
- On-time payments will help build your credit, which can help you save on future loans
| Tip: Autopay can backfire if you don’t keep enough money in your bank account to cover your loan payment. Only use this method if you know you can comfortably afford your payments and won’t overdraw your account. |
6. Consider refinancing large student loans
Refinancing student loans can be a great way to save money on your debt, since you can potentially lower your interest rate or repayment term. Just keep in mind that you’ll generally need good credit and a reliable income to qualify.
However, you should note that refinancing federal student loans means giving up federal borrower protections, such as income-driven repayment plans and student loan forgiveness. Think seriously before refinancing those loans, as the process is permanent and irreversible.
7. Research repayment assistance programs
It’s no secret that student loans can be a massive hurdle for many people, and because of that, repayment programs have emerged to help graduates succeed.
For example, the Maryland SmartBuy program gives homebuyers in the state 15% of the purchase price of their home (up to $50,000) to pay off their student loans. Or, consider the Tulsa Remote initiative, which provides $10,000 to remote workers who move to Oklahoma city.
An increasing number of employers, including Google, Chegg, and Fidelity, will also provide student loan repayment as a perk for working with them. Some professionals, including doctors, nurses, teachers, and lawyers, may also qualify for specialized loan repayment programs.
8. Look into forgiveness
If you have federal student loans, you may be able to access student loan forgiveness through one of several programs. Public Service Loan Forgiveness, for example, can erase the loans of eligible government or nonprofit employees after they make 120 qualifying payments. Teacher Loan Forgiveness, on the other hand, offers up to $17,500 in forgiveness for educators who work for five years in a low-income school and meet other criteria.
Most federal loans also qualify for income-driven repayment plans, which set your monthly payment at a percentage of your income and can lead to forgiveness after 20 or 25 years of payments.
Unfortunately, private loans generally aren’t eligible for forgiveness.
9. Keep other costs low
If you hope to pay off large student loans efficiently, you may need to pay extra attention to your general financial management. For example, tracking your spending and setting a budget is a solid way to ensure that enough money is going toward your various goals.
See if you can save some money by canceling old subscriptions, renegotiating recurring bills, or cutting back on some luxuries. If you need to take more drastic steps, reducing your housing costs can have a big impact. Since this is most people’s largest monthly expense, consider getting a roommate or moving to a cheaper area to reap significant savings.
Alternatively, brainstorm some ways you could increase your income. Asking for a raise, finding a better-paying job, or taking on a side gig can all be effective ways to pay off large student loans faster.