Pay off student loans

1. Are you using the right payoff strategy?

Juggling multiple debts? You need a good strategy. Here are two popular payoff strategies that can help you reduce your overall debt, including student loans:

Snowball: Paying off the smallest balances first—aka, the snowball approach—can free 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 can be one of the quickest ways to start reducing your debt and paying off your student loans. Getting that first balance paid off can help give you a mental boost—and help you start making even bigger payments on your other balances. The bigger the payment, the faster you can 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 costliest debts first may save you the most money in the long run. 

2. Can you refinance your student loans for a better interest rate?

Typically, 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 now, you may have a better credit history and higher credit score, which could help you qualify for a lower rate. Lowering your rate by even one percentage point could help you move up your payoff date and may save you thousands in interest payments over the life of your student loan.

3. Should you consolidate your student loans?

If you have multiple student loan balances, you may want to consider consolidating. You can potentially refinance for a better interest rate and 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 cash flow all at once.

Pro tip: Think twice before consolidating any federal student loans with private loans. When you do this, you’ll give up access to any federal benefits, including repayment plans designed to help low-income borrowers and potential loan forgiveness programs. Plus, federal loans often have lower interest rates than private loans to begin with. 

4. Is student loan forgiveness an option?

If you have private student loans, forgiveness probably won’t be an option. For federal student loans, you might’ve heard about recent plans to cancel student loan debt for some borrowers. There are additional programs that offer federal student loan forgiveness if you meet certain conditions. However, the number of people these forgiveness programs can help is relatively small, and you shouldn’t count on them as part of your student loan debt payment plan.

One of the most common programs is the Public Service Loan Forgiveness program, which offers loan forgiveness to some borrowers who work for a government agency or nonprofit and make qualifying monthly payments for at least 10 years.^{Disclosure 1} 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.^{Disclosure 2}

5. Can you pay a little extra?

If you have private student loans, forgiveness probably won’t be an option. For federal student loans, you might’ve heard about recent plans to cancel student loan debt for some borrowers. There are additional programs that offer federal student loan forgiveness if you meet certain conditions. However, the number of people these forgiveness programs can help is relatively small, and you shouldn’t count on them as part of your student loan debt payment plan.

One of the most common programs is the Public Service Loan Forgiveness program, which offers loan forgiveness to some borrowers who work for a government agency or nonprofit and make qualifying monthly payments for at least 10 years.¹ 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.²

6. 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 may help add up to a better credit score. And when it comes time to borrow for a car or home, you may be able to score a better deal.