Pay off student loans

Are you using the right payoff strategy?

Juggling multiple debts? You need a good strategy. Two payoff strategy ideas:

Snowball: Paying off the smallest balances first—aka, the snowball approach—frees up cash flow the quickest. Even if your smallest loan takes a few years to pay off, using more of your budget to make larger payments on your smaller loans is the quickest way to a win. Once that first balance is paid off, it’s sure to give you a mental boost—and it means you can start making even bigger payments on your other balances. The bigger the payment, the faster you lower your principal balance.

Avalanche: Focus on whichever debt is costing you the most—typically the one with the highest interest rate. It may take longer to feel like you’re making progress, but tackling the most costly debts first will save you the most money. 

Can you refinance for a better interest rate?

Usually, when you take out student loans, you have little to no credit history—which impacts the interest rate on your loans. The higher your rate, the more your loans cost. But by now, you likely have a better credit history to qualify for a lower rate. Lowering your rate by even one percentage point could move up your payoff date and save you thousands. 

Should you consolidate?

If you have multiple student loan balances, consider consolidating. It’s one way to refinance for a better interest rate—and you can reduce the number of monthly payments you have to keep up with. For some, consolidating can lower the cost of your debt, move up the payoff date, and free up some cash flow all at once. 

Pro tip: Think twice before consolidating any federal loans with private loans. If you do, you’ll give up any federal benefits, like when they paused interest rates in 2020. Plus, federal loans often have lower interest rates than private loans to begin with. 

Is forgiveness an option?

If you have private student loans, forgiveness probably won’t be an option. For federal student loans, there are programs that offer forgiveness—but realistically, the number of people these forgiveness programs can help is small.

One of the most common programs is the Public Service Loan Forgiveness program, which offers loan forgiveness to some who work for a government agency or nonprofit for 10+ years. Or, if you’re in a lower-paying field, you could have certain federal student loans forgiven after making payments for 20+ years under an income-based repayment (IBR) plan.

Can you pay a little extra?

The more you pay now, the more you save later. Whether you’re using the snowball or avalanche method, when you make extra payments between your regular monthly payments, most of the extra payments will go straight to your principal balance. The lower your principal, the less interest you’re charged each month—and the closer you are to being debt-free. 

How do student loans affect your credit score?

Student loans may feel like a necessary evil, but one silver lining of taking on debt for school is that it gives you an opportunity to start building your credit history as a young adult. Each on-time payment you make adds up to a better credit score. And when it comes time to borrow for a car or home, you’ll be able to score a better deal.