Life can get expensive. When you factor in things like rent or mortgage, groceries, childcare expenses, transportation costs, and more, it adds up quickly. For 44 million Americans, their monthly budget also includes student loan payments. If you’re trying to figure out how to pay off student debt faster, SoFi can help.
If you’re able to eliminate student loan payments from your monthly budget, you’ll have more money to save for a down payment to buy a home or for retirement. Consider this: College graduates turning 30 who don’t have student loan debt may have twice the amount saved for retirement as those with student loans. (That’s from a study comparing graduates with no debt to grads with student debt balances around $28,116.)
When you factor in the power of compounding interest, that can add up to quite a bit of money. So, what is the fastest way to pay off student loans? There’s no one right answer, but these six tips could help you accelerate your student loan repayment, so you can focus on other financial goals.
6 Tips to Help Accelerate Student Loan Repayment
1. The Benefits of Prepaying
One of the most effective ways to possibly get ahead of student loan debt is to cushion your payments by paying more than the monthly minimum. When it comes to student loans, there are generally no prepayment penalties, so it might be one of the fastest ways to shrink your debt. (Actually, it’s against the law to charge prepayment penalties on private or federal student loans.) As a bonus, when you prepay towards your principal loan balance, you’re also shaving off the total cost of interest you may otherwise pay over the life of the loan.
To see how much prepaying could impact your repayment plan, check out an online calculator. This can give you an estimate of what your savings could look like if you’re able to prepay on your loan.
You might be surprised how much an additional monthly $50 payment can trim down your debt. If your monthly budgets are too tight to make an additional monthly contribution, you might consider increasing your payments every other month or quarterly.
To make the most of your prepayments, make sure the additional payments are being applied to the loan’s principal. Some lenders may apply the payments to the next month’s payment instead of deducting it from your loan balance. Check with your loan servicer to confirm your prepayments are being applied to the loan’s principal.
2. Making a Lump Sum Payment
If making monthly prepayments to your student loans is out of the question, consider making a lump sum payment. Make use of “found money.” Instead of treating your tax return, financial gifts, bonuses, or a raise at work like “fun money” you could use it to double down on your debt. Even applying just half of the windfall could add up to considerable savings over time.
It may also be a good time to review your spending habits and see where you might be able to find some extra cash. Even minor adjustments like taking public transportation instead of a cab or finding street parking instead of paying at a garage could add up.
When you find areas in your spending to cut back, instead of paying out that money to a vendor, consider adding it to a savings account dedicated to your student loan repayment fund. Then you can use that money to make a lump sum payment on your student loans.
3. Finding a Side Hustle
If you’re still searching for how to pay off student debt faster, you could try finding an additional source of income. Then you can use your supplementary income to help pay down your debt. Take a look at your skills, hobbies, and interests. While it may just take a little perseverance and hard work to find the right side hustle, it could wind up being one of the fastest ways to pay off those student loans.
There are tons of apps that offer flexible, part-time side hustles. If you’re crafty, try selling your creations at an online marketplace. If you’re a photographer, writer, or editor, try finding a freelance gig. Once you get your side hustle going, the additional income can be regularly contributed to make extra student loan payments.
If you’re still in college, you could even get ahead with a part-time job. If you have an unsubsidized federal loan, you could use a portion of the money you make from your part-time job to make interest-only payments on your student loans. If you have subsidized federal loans, you could consider setting up a savings account dedicated to your student loan repayment fund. When you graduate you could have a dedicated allotment of money you can use to make a lump sum payment.
4. Getting Help Paying Off Your Loan
This may seem like an unrealistic pipe dream, but you could speed up your loan repayment if you can find a way to have someone else contribute too. As millennials move into the corporate world, they’re showing employers that they want different benefits than their parents did – and one of the benefits they want is assistance paying off student loan debt
Currently, about 4% of companies offer student loan assistance programs, but there is huge potential for growth. Some companies are even using the benefit as a recruiting tool, especially in larger cities.
Typically, companies contribute around $100 a month to their employee’s loans. While this might not sound like a lot, it could, for example, trim up to three years off a $27,000 student loan on a standard 10-year repayment plan. (That’s assuming the interest rate on the loan is 4%.)
Some volunteer opportunities might contribute to your student loan repayment in exchange for your time. For example, members of the Shared Harvest Fund can get a monthly stipend applied to their student loans if they match up with a non-profit organization that needs their professional help.
You can choose the cause you like or can filter by project. So, for example, if you’re an attorney, you can consult with an organization looking to change its business structure. A social media whiz can help set strategy for a nonprofit therapy pet agency.
Finally, there’s simply asking for help. Your family and friends want you to succeed, so why not ask them to contribute to your student loan instead of buying something you don’t really need on your birthday?
One site lets you set up your profile to share via social media to make it easy for family and friends to invest in your education.
5. Rolling Out a Debt Snowball
When it comes to finding the fastest way to pay off student loans, you could try using the “debt snowball” method. Here’s how that can work: First, take a look at your loans, disregarding the interest rates, looking at the balances instead. While you should be making the minimum monthly payment on all your loans, the debt snowball method has you focusing any additional money on paying off the loan with the smallest balance first.
Once that loan is paid off, you’d use the money you were paying on the old loan payment amount and roll it to the next smallest debt. The idea is to continue using this method until all of your loans are paid off. Each time you pay off a loan, it feels like a win that helps you see the progress you’re making.
6. Refinancing Your Loans
Refinancing your student loans allows you to take out a new loan with a private lender, essentially paying off your existing loans. This new loan has a new interest rate, term, and monthly payment.
Depending on your credit score and earning potential (among other factors), you might be able to secure a lower interest rate when you refinance your loans – which means the loan may accrue less interest over time (depending on the loan’s term). Lenders generally offer both fixed and variable-rate loans and often give you the option to extend or shorten your repayment term.
If you have exclusively federal student loans you could consolidate them into a Direct Consolidation loan, so you have one payment. The new interest rate will be the weighted average of your existing interest rates rounded up to the nearest eighth of a percent so, unlike refinancing, consolidating your loans may not result in a lower interest rate.
Before refinancing, weigh the borrower protections you have with federal student loans against refinancing with a private lender, who can’t offer the same federal benefits. For example, if you are currently enrolled in an income-driven repayment plan or are applying for Public Service Loan Forgiveness, refinancing might not be your best option.
But if you are enrolled in a standard repayment plan, refinancing could be an option that allows you to take control of your student loans. When you refinance with SoFi, you could qualify for Unemployment Protection if you lose your job through no fault of your own, which allows you to put your loan into forbearance for up to 12 months while you look for new work.
To see what a new loan with SoFi could mean for your finances, take advantage of our student loan refinance calculator. SoFi offers student loan refinancing options for borrowers looking for faster ways to pay off student loans.