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 24th August 2020

If you have graduated from college or school in the last decade, then you are already aware how critical student loan situation has been 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. 

Making a plan

  1. Loan consolidation: This might help 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.

  2. Auto monthly payments: 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. 

  3. Be aware of loan options: If you have multiple student loans, applying for options like forbearance, payment plans, deferments, or consolidation can also help you get targeted advice. 

  4. Time provided before you start your payments: 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 asgrace 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.

Making your payment

  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.

When to make these payments

  1. 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

  2. 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

  3. 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

  4. 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 overtime. 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

  5. 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 not to make these payments

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.

Final thoughts

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 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.