How to Pay Off Student Loan Debt Fast

Last Updated: September 28, 2021 by Melanie Hanson

Pay off your student loans faster to reduce your bottom line and your debt burden.

How to Pay Off Student Loans Fast
Use all deductions & discounts This includes all hidden discounts, any tax credits or deductions, interest rate reductions, etc.
Strategize & Budget Don’t just cut costs; calculate your income, payments, and payoff date to determine how much you can reasonably afford to put toward your debt.
Make larger payments Instead of making the minimum monthly payment, increase your payments to reduce your loan term.
Make more frequent payments Set up automatic payments to pay weekly. 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.

Your student loan debt may also qualify you for certain benefits, such as tax deductions at the federal, state, or local level.

Selected Federal Tax Benefits
Tax Benefit Program Maximum Claim*
Work-Related Education $5,250
American Opportunity Credit $2,500
Student Loan Interest Deduction $2,500
Lifetime Learning Credit $2,000
Educator Expense Deduction $250

*Per student, per year.

Tax Credits & Deductions

Tax credits for student loan debt are generally only available for federal loans. You may also be able to deduct education expenses depending on eligibility. Work-related education costs, such as supplies and travel, may be tax deductible even if the continued education is not legally mandated.

Indirect student loan debt may also be eligible. Having student loan interest, for example, may allow you to take a federal tax deduction of up to $2,500. Education-related tax deductions could theoretically total in excess of $12,000.

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 at least one private lender due to an association with one or more partner organizations.

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.

Doughnut Chart: Federal Guidelines for Household Budgeting, 50% of net income goes toward necessary household costs, 30% toward household wants, and 20% goes toward savings and debt repayment

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.

Doughnut Chart: Adjusted Household Budget, 48% toward household needs, 27% wants, 15% student loan payments, 10% savings and other debt

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.

Selected Federal Student Loan Forgiveness Programs
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

  1. Duke University Personal Assistance Service, Money-Related Stress
  2. U.S. Department of Education Office of Federal Student Aid, Types of Financial Aid
  3. Massachusetts Institute of Technology, Student Financial Services: Basic Budgeting
  4. Internal Revenue Service, Publication 970 (2020): Tax Benefits for Education
  5. West Virginia Federal Credit Union
  6. California State Teachers’ Retirement System, Your 50/30/20 Monthly Budget Guide