Should I pay off my student loans earlier?

Should I pay off my student loans earlier?

Many people are facing similar problems regarding student loans. The university tuition fees are rising constantly and the majority of graduates end up with huge debts, some of them even dealing with six-figure sums.

For those of you who are still in school, it would be great to choose a college with a reasonable price, but what if you are already dealing with student loan debt? ”I have got some extra cash, should I pay off student loans ahead of time”? Depending on your situation, it might be the right decision. However, building financial stability would be a better choice. In some situations, it might be better to wait, and here is a guide for you which will help you to make the right decision.

Pros. Basically, the main advantage of paying off student loans sooner is to minimize the interest rate and it will offer you financial freedom for other projects. Student loans, just as normal debts, accumulate higher rates over time. The repayment might also act as an impediment for investing. So, if you pay sooner, you will pay less for the rates and you will be able to make an important acquisition or start a business.

Cons. The disadvantage is the pressure of higher sums and the lost chance for your student loan to be forgiven. If you pay a higher amount to cover your debt, you may run out of savings, which are so necessary for emergencies, and this can lead you to other loans. Furthermore, if you qualify for student loan forgiveness, it might be better for you to respect the payment plan with minimum payments and your remaining balance will be forgiven over time.

Things to Do Before Paying Off Early

The decision should be based on your financial priorities. This means that there are certain things to do before paying off your student loan debt. If you meet all these criteria, then you can cover your loan with no doubts.

Start an emergency fund

Unexpected events may arise at any time and you should be ready to cover them. Medical expenses or an accident might be difficult to handle without savings. Therefore, starting an emergency fund would be a better choice than loan repayment. Ideally, you should put some cash aside enough for three to six months worth of expenses, but if this will put too much pressure on your daily activities, consider smaller sums. This will save you in tough situations and keep you away from credit cards with high interest.

Save for retirement

Financial freedom comes with the security of being able to maintain the same standard of living, even when you retire. Did you know that if you save $1 in your 20s, it will worth $15 bu the time of retirement? If you start when you are young, the amount of monthly savings will be much lower than if you will wait for another 10 years or more.

If you consider paying off student loan early, you won’t be able to create the retirement fund soon enough. It is recommended to set aside 15% of your incomes, 10 of them for the retirement fund, and 5 for the emergency one.

Go debt-free first

Federal student loans can have relatively low-interest rates as high as 2-3%, while credit card debt could go up to 16 percent. So, if you have any over loans, it makes sense to cover them first. If you choose to use the extra money to pay off student loans, you will only prolong the payment period for other debts and overpay due to the higher interest rates.

Significant acquisitions

Placing the student loan payment as a priority might postpone other important acquisitions, like home ownership. For the majority of people, it might be quite difficult to handle two loans at once, so certain investments that require increased financial will be considerably delayed.

How to Pay Off Your Student Loan Early

Now that you know about all the steps which could be a better option to do first, we can move on and see what are the methods for paying off student loans early in a smart way. If you have enough savings and have started your retirement fund, then you can start thinking about student loans. Here is a short guide of how to do it avoiding too much pressure on your finances.

Set a higher payment

One good option for paying student loans sooner is to set up higher monthly payments. If your income is steady and you do not plan investing money in something like buying a home, feel free to review the repayment plan and rise a bit the monthly payments. These sums do not have to create pressure, but even tiny money during at least one year could save you months of extra paying. Do it only if you have a stable job, as the student loan debt is income-based.

Make an extra loan payment

This is another option for paying off student loans early. Make sure to inform your lender that you want to make extra payments. There are some possibilities, like choosing a biweekly payment instead of paying once a month.

Put down a large amount

This trick will help you to save on student loan interest rate. If you have received some money in form of a present or a job bonus, it could make sense to use it to cover a significant part of your debt.

Refinance your loan for a lower rate

With a secured income and good credit history, you can pay off your student loan sooner by being eligible for new loans at a lower interest rate. Search for a private lender and find out about this option. A lower rate means significant savings.

Run a personal finance review

Before applying the above-mentioned options, you should do first the analysis of your incomes and expenses. This may help you to get more efficient in managing your money. Start by analyzing your credit card statements, reviewing the earnings, and the costs. Get to know the aspects which cost you the most, it may be a debt or a credit card loan which you should get rid of. Understanding your spending will allow you to find ways for saving money which can be used as extra payments for your student loans.


This is a decision that requires detailed analysis before deciding if paying off your student loan early or not. Feel free to consider this option if you do not have a debt or other credit cards loans at high-interest rates, and if you have built an emergency fund with enough money to survive at least one month. However, paying off your student loans sooner can postpone other financial goals. Therefore, we recommend analyzing your goals and set up priorities.

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