To clear your student loans sooner, put extra payments toward principal on your highest-rate loan, and find out whether your employer or your state will pay part of the balance. Before you prepay a federal loan, check that you’ll repay it in full, since extra payments on a loan headed for forgiveness only shrink the amount forgiven.
Public Service Loan Forgiveness cancels what’s left on federal Direct Loans after 120 qualifying monthly payments made while you work full time for a government agency or qualifying nonprofit. An income-driven plan, which ties your payment to your income and family size, can forgive any balance left after 20, 25, or 30 years of qualifying payments.
Private loans qualify for neither. To see whether you’d pay off a federal loan before it qualifies for forgiveness, compare plans in the Education Department’s Repayment Calculator. Use the moves below on every private loan and any federal loan you’ll repay in full.
1. Put every extra payment toward principal
Paying more than the bill is the most direct way to finish early on any loan you’ll repay in full, as long as your servicer applies the extra the way you intend.
Extra student loan payments only speed up your payoff if your regular payments keep coming too. By default, many servicers count the extra toward your next bill, so your due date gets pushed back or the amount due shrinks. Tell your servicer to put extra toward principal on your highest-rate loan instead.
Read more: Extra Student Loan Payments Can Just Prepay Your Next Bill - Aim Them at Principal
2. Pay down the highest-rate debt first
Federal loans from different school years can carry different fixed rates, and a card or car loan may charge more than any of them, so line up every debt by rate before sending extra anywhere.
Every extra dollar you put toward a debt saves interest at that debt’s rate, however big or small the balance. That’s why the debt avalanche, which targets your highest rate first, costs less than the debt snowball, which starts with the smallest balance. Pay every minimum, then send extra dollars to the debt with the highest rate you’ll actually pay.
Read more: The Debt Avalanche Method Saves More Money Than the Debt Snowball
3. Refinance private loans at a lower rate
A lower rate on the same number of years left cuts your interest but not your payoff date, so keep paying your old amount and send the difference to principal.
Private student loans don’t qualify for federal income-driven plans or forgiveness, so refinancing them gives up almost nothing. Once your credit or income has improved, prequalify with several lenders and take the lowest rate on a term no longer than the one you have left, if the new loan’s hardship terms match yours.
Read more: Refinance Private Student Loans Whenever Rates Drop - There Are No Federal Protections to Lose
4. Ask your employer to chip in
Help from your employer speeds payoff only when it adds to what you already pay, so keep your own payments where they were and send anything it reimburses you to the loan.
Ask HR whether your company has an educational assistance plan that covers student loan payments. Through one, the company can put $5,250 a year toward your loans, and you owe no federal income or payroll tax on that money. If there’s no plan, ask for one.
Read more: Your Employer Can Pay $5,250 a Year Toward Your Student Loans Tax-Free - Ask HR
5. Check for a state repayment program
State help is outside money, like an employer’s, but whether you qualify depends on your line of work and your state.
State programs help repay student loans for many nurses, doctors, teachers, and lawyers in hard-to-fill jobs, and sometimes for people who move to the state. Before you take a job or plan a move, check what the state offers and the strings attached, then make sure the choice works without the money.
Read more: State Student Loan Repayment Can Sweeten a Job or Move - Don't Let It Decide
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