Pay off your student loans faster to reduce your bottom line and your debt burden.
| Use all deductions & discounts | Confirm you receive all interest rate reductions, tax deductions, hidden discounts, etc. for which you are eligible. |
| Strategize & budget | Determine how much you can reasonably afford to put toward your debt. Don’t just cut costs; calculate your income, payments, and payoff date. |
| Make larger payments | Reduce your loan term and your interest payments by making more than the minimum monthly payment. |
| Make more frequent payments | Set up automatic payments to pay weekly, and immediately put all or most of any sudden cash windfalls toward reducing your debt. |
| Consolidate & refinance | Consolidate federal loans. Consider refinancing private loans. |
| Seek loan forgiveness | Federal student loans may be partially or totally forgiven under certain strict circumstances. |
Use All Deductions & Discounts
Hidden discounts are more widely available than most borrowers realize. Financial institutions don’t always publicly advertise these deals, especially those they only make available to people who work at a particular company or have a special membership.
Interest Rate Reductions
Some lenders offer discounts in the form of an interest rate reduction. For example, many refinance lenders apply a 0.25% APR reduction when you sign up for automatic payments. Banks sometimes offer a further 0.25% APR reduction when your automatic payments are linked to one of their checking accounts.
Lenders that partner with other organizations may offer rate reductions to company employees or members. Over one (1) million people qualify for a 0.10% APR reduction with private lenders due to such partnerships.
Discounts
Private lenders sometimes advertise one-time cash bonuses or discounts to their customers or the general public. These offers may be temporary, so check with your lender periodically to see if you are eligible for any new benefits. Also ask about discounts your lender does not publicly advertise.
Financial institutions often form partnerships with other private companies. It’s typical for these arrangements to include special services for partner employees or members, such as one-time and regular discounts. Regular discounts may be in the form of interest rate reductions.
These partnerships are more common among major national employers or member associations as opposed to small businesses. Check with your employer to find out if any similar benefits are available to you.
Tax Credits & Deductions
While there are no tax credits for loan debt per se, there is a deduction for student loan interest. You may claim up to $2,500 in student loan interest payments per year for the Student Loan Interest Deduction.
On a related note, there are tax benefits that allow you to deduct educational expenses. You may be able to claim credit for up to $2,500 in a year using either the American Opportunity Credit or the Lifetime Learning Credit (up to $2,000). It is not possible to use both of these claims in the same year. Use what you save from these deductions to make additional loan payments.
Strategize & Budget
Calculate your income, monthly payments, and other expenses under multiple economic scenarios. Developing a budget with a planned pay-off date will not only help you keep up with payments, but it will help you imagine a life without your student loan debt; this is your primary motivator.
One mistake people make when budgeting is blindly cutting costs. Reducing expenses is part of budgeting, but it’s important to track those expenses. Doing so helps you develop your life plan as well as your financial plan. Furthermore, anticipating economic stressors can help you better manage your everyday mental health and, by extension, your physical health.[1]
Though professional financial planners recommend overestimating expenses and underestimating income in order to allow for surprise costs, it’s also important to maximize payments to pay off debt quickly.
Make Larger Payments
Contributing the minimum payment to your debt gives you the longest repayment timeline possible; to shorten your loan term, increase the value of your regular payments. In addition to strategic cost-cutting, incorporate raises, side gigs, and windfalls into your payment plan.
Additional Income
Most workers with college degrees can expect to see their pay increase over time with promotions as well as with general currency inflation. Include any raises you may earn into your repayment plan. Consider setting salary goals and learn to negotiate/advocate for yourself to maximize your income and make larger loan payments.
Professional Raises
A professional raise typically means you’re making the largest income you’ve ever earned. Since you’ve already budgeted for a lesser income, you should be able to maintain much of that budget. Use a significant portion of the added income to pay off your student loan debt.
Additional Employment
Young professionals often have “side gigs” to supplement income. Include this in your repayment plan. If you don’t have a side gig, you may consider finding a secondary source of income specifically to increase student loan payments.
Cash Windfalls
Any one-time cash windfall should go toward debt repayment. This may include inheritance, cash gifts, proceeds from a sale, and work bonuses, among other one-time cash gains, in whole or in part.
Unexpected income can shave months or years off of your student loan debt, ultimately saving you even more in potential interest. Using your windfall this way has no impact on the rest of your spending, so you can make a large payment without having to sacrifice any other part of your budget.
Make More Frequent Payments
This doesn’t just go for unexpected income; it’s easier to budget for $50 per week as opposed to $200 per month. Set up weekly automatic contributions and never worry about harming your credit with a missed payment.
Credit reporting agencies check your credit report monthly to update your score for their records. Each agency checks your report at a different time of the month. More frequent payments show continuous repayment activity and debt reduction on your credit report; this ensures your debt is as low as possible when any of the three (3) major credit agencies records your score.
Consolidate & Refinance
Consolidation and refinancing both offer ways to reduce the number of monthly loan payments borrows have to make. Doing so mathematically reduces the likelihood of missed payments.
With consolidation, multiple student loans from multiple academic years can be combined into a single loan. Refinancing, on the other hand, uses a large, single loan to pay off multiple student loans at once; borrowers then repay the refinance loan.
Loan Consolidation
Federal loans can be consolidated into one loan debt, meaning you only have to worry about one payment as opposed to a half-dozen. Consolidation Loans have a weighted average APR, which makes calculations easier when you make or update your financial strategy.
Loan Refinancing
Federal loans and private loans can be refinanced, which is similar to consolidation in that you can essentially “bundle” your loans. Refinancing involves taking out a new loan with a new contract, giving you the opportunity to negotiate a lower APR, among other terms. The new loan pays off some or all of your old student debts; instead of multiple loan payments, refinancing gives you a single loan with a single loan payment.
Refinance lenders often advertise special promotions, such as cash bonuses as part of a welcome bonus or customer referral. Consider these a cash windfall and put them toward repayment.
Note that refinancing federal student loans disqualifies them from federal student loan protections, such as income-based repayment plans (which you should avoid using if you want to pay off your loans faster) and student loan forgiveness.
| Loan Forgiveness Program | Total Loans Forgiven | Approval Rate |
|---|---|---|
| Teacher Loan Forgiveness | 371,000 | Undisclosed |
| Borrower Defense Discharge | 94,784 | 37% |
| Automatic School Closing | 33,700 | NA* |
| Public Service Loan Forgiveness (PSLF) | 3,458 | 2.1% |
| Temporary Extended (PSLF) | 224 | 3.4% |
*This student loan forgiveness program is administered automatically. A negligible percentage of students must actively seek this type of federal student loan forgiveness.
Pursue Student Loan Forgiveness
Student loan forgiveness is usually only an option with federal student loans.
Loans are usually forgiven in total when they were used to enroll in an institution that was later found to have defrauded its students (Borrower Defense to Repayment Discharge) or an institution that has closed (Closed School Discharge).
Federal loan forgiveness is also supposed to protect borrowers for whom debt repayment is no longer feasible. For example, student loans may be discharged in the unfortunate event of total and permanent disability on the part of the borrower. Certain income-based repayment plans have lengthy term limits after which the remaining student loan debt is forgiven.
Jobs that offer student loan forgiveness have similar term limits for repayment; eligible borrowers must make regular, qualifying payments for a certain period (usually 10 years) in order to apply for loan debt forgiveness. This may include public school teachers in certain districts and nonprofit employees.
Again, while certain jobs offer partial or total student loan forgiveness, usually only federal loans qualify. Some employers, however, offer to repay their associates’ private student loan debts under certain circumstances. Refer to your employer to find out if you qualify.
For a full list of all federal and state student loan forgiveness programs, see 144 Student Loan Forgiveness Programs.
Sources
- Duke University Personal Assistance Service, Money-Related Stress
- U.S. Department of Education Office of Federal Student Aid, Types of Financial Aid
- Massachusetts Institute of Technology, Student Financial Services: Basic Budgeting
- Internal Revenue Service, Publication 970 (2020): Tax Benefits for Education
- West Virginia Federal Credit Union
- California State Teachers’ Retirement System, Your 50/30/20 Monthly Budget Guide