Paying ahead on Student Loans: Getting out ASAP

Learn how to plan your payments, when you should and shouldn't pay ahead on your student loans.How to pay ahead on your student loans. The aspect of keeping your money safe and some final words on paying ahead.

Updated by Vidish S on 22nd January 2020

If you have graduated from college or graduate school in the last decade, then you are already aware how much worse student loan situation has gotten over the last few years and how it keeps rising at a level that cannot be sustained and is forcing students to graduate with enormous student loan debts. There is a way to get out of the vicious payment cycle early by choosing from the Best Student Loans or paying ahead on your student loan repayment bills. 

Table of Contents

Making a Game Plan and Making your Payments

Venturing towards your goal of getting rid of your student loans as fast as possible requires you to do two important things :

  1. Making a Plan.

  2. Making your Payments.

The most reliable way to make repayments on your student loans is to devise a plan, become organized and then automate your payments and forget about them. Loan consolidation might be of help to you if you have a lot of different lenders, but it’s not essential if you’re organized. You can try and make a spreadsheet on your preferred software with all of your student loans, their monthly payments, their balances and interest rates. You may then proceed to set up automated monthly payments for each lender using whatever means they might provide for the same. Usually, their website might provide you with this functionality. 

If you have multiple student loans, you can find many online apps and websites that can help you get to that level of organization. There are resources available online, both paid and free, that show you charts of your loans by payment, balance, and APR, so you know where to direct your payments. Applying for options like forbearance, payment plans, deferments, or consolidation can also help you get targeted advice. 

You should be aware that by not repaying your credit dues, your credit score goes down which reduces your credibility in the eyes of the financial institutions and can prevent you from being eligible for the utilization of their services when you may require them. In the event of a prolonged cycle of unpaid dues, you will be contacted multiple times by the financial agency. You might even get dragged to court where your wages can be garnished by the judge and the remaining dues be collected from your account balance.

The final word is that skipping on payment of your due credit balances is a bad idea and can badly affect your finances.

If unfortunately, you are having trouble with your dues repayment, there are a few protections that have been set in place to help you, such as grace periods as well as forbearance. If you work in public services, then you may even be eligible for partial or complete forgiveness of your remaining dues.

When does pay ahead on your student loans make sense?

  • You have an emergency fund. Having an emergency fund is kind of a necessity if you’re thinking about pay ahead on your student loans. It is some amount of money that you may set aside for emergencies, such as repairing unexpected damage to your home, your car, or treatment during sudden illness.

  • You don’t have credit card debt. You may use credit cards while paying for items or services. If you do, then repayment of your credit balance takes priority over your student loans. While we acknowledge that student loans may have high-interest rates, credit card rates can be even higher, sometimes much higher. 

  • You have enough contribution towards your retirement to get the maximum employer contribution. Having future goals like retirement may render thoughts about student loans unimportant. But investing early is important as it will provide you with enough time for your money to grow to a considerable amount. 

  • Your student loans have high-interest rates. If your student loans have high-interest rates, such as federal student loans with interest exceeding 8%, or private loans from a private lender which have an even higher interest rate, most of the amount from your monthly payment goes towards paying the interest and not the principal, increasing the total amount owed over time. Paying off your student loans early can help save money as you will not pay as much amount as you would over a longer period.

  • Your student loans weigh you down. If your student loans burden you or are causing you anxiety or making you feel like you cannot do things in life that you’re interested in while having these loans, then it might be worth trying to pay them back early.

Once you clear your Student loan debt, you might be motivated to work towards paying down your other debt and gain a sense of independence and relief.

When is it not the right option?

Learning more about managing your finances and personal wealth brings across one lesson constantly: Debt is not good and you should avoid getting into debts and if you have fallen in debt, then get out of debt as soon as you possibly can. Sometimes it is better to not repay student loans early even if you have the means. It might be more profitable to invest that money and claim the returns rather than using that money to pay your student loans ahead of time. If your student loans have an interest rate of less than 10%, then it might be more profitable to invest that money rather than paying ahead on your student loans.

How to get started?

  1. Pay off capitalized interest. Usually, student loans have a grace period of up to 6 months after graduation or leaving college. Try to pay off any interest that has accrued during this period. This will help keep your balance from increasing, making it easier to pay off your debt.

  2. Make extra payments. Signing up for autopay ensures that monthly payments are not missed and the appropriate amount is deducted from your account automatically. You can make additional payments beyond the automatic monthly payment as well to reduce your credit balance. Some loan servicers also allow you to deduct an additional amount and send it to other loans.

  3. Make biweekly payments. Making biweekly payments can help you stay on a disciplined course of repayment for your student loans.

  4. Take advantage of your employer’s generosity. Many employers may clear your student loans for you as a part of workplace perk.

  5. Refinance student loans. Refinancing your student loans is another option to reduce your repayment timeline. A stable income with a good credit score can help you achieve a lower interest rate with a private lender. Many lenders offer a 5-year term loan with certain conditions. You may be able to pay ahead on that as well and get rid of your debt even sooner.

Ways to protect your money

If you continue paying your monthly payments on time, then you will be able to clear your loan balance on schedule. Here are some helpful tips if you do not want to keep paying monthly repayments for a long time and want to be rid of your debts sooner:

  1. Regularly check your payment details to ensure that you are still on track to finish your repayments in your desired duration. Check out your monthly payment and payment history to ensure you stay on track.  

  2. You can instruct your servicer on how the additional amount being repaid should be utilized.  If your automatic payments are configured to regularly debit additional amount, then it is advised that you contact your servicer to establish a plan according to which the additional amount should be redirected to your other loans. Individual payments can also be assigned some instructions to be followed for auto-debit. You may have to contact your lender through mobile or email to configure your automatic payments with them. You need to ensure that the extra money being paid towards your loan isn’t pushing your due date farther which might result in your servicer giving you a “Payment Holiday”. This can result in you gaining “paid ahead status” which will result in you not paying your monthly payments for some time and will further extend your term and increase the interest you will have to pay.

  3. Contact your lender for help if something doesn’t look right. If you receive a bill for a payment amount that is less than what you were paying before, then you must contact your lender and ask them to place you back on your original payment cycle. If the problem still persists, you may be forced to submit a formal complaint with your lender.

Some final words

One reason to not get overzealous on receiving a decent compensation and start paying ahead on your student loans is to enjoy the fruits of your labor first. You would have worked hard to reach the position you are in now. You will probably end up having more money as you grow older due to increased salaries and eventual savings that you will build up over time.

You should not ruin your current and future personal finances just to get out of student loan repayments early, but neither should you bank on your retirement so much so that you ruin your finances waiting for the perfect employment opportunity to get out of your debt. Balance is everything and a careful analysis of your current finances and opportunities can help determine how you should tread with your student loan’s payment ahead of time.

We advise you to use a student loan payoff calculator, available online, to determine how much each of the available repayment strategies could save you.