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4 strategies for paying off your student debt faster
Part 5 of Highway’s “Options for managing your student debt” series. What’s the best way to pay off your student debt fast?
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Welcome to part 5 of Highway’s series “Options for managing your student debt.” Previously in this series, we walked through the various options available to borrowers to make their student debt burdens, particularly their monthly minimum payments, more manageable.
In this post, we’ll take a slightly different approach. Let’s take a look at how borrowers might make their student debt more manageable, not by minimizing their monthly loan payments, but by paying extra each month to pay it off faster.
Other posts in this series:
Disclaimer: we do not recommend trying to pay off your loans faster unless you feel financially comfortable enough to do so (but if you’re fortunate enough to work for a company that offers an student loan repayment benefit, that’s another story).
When you’re struggling with tens or hundreds of thousands of dollars of student debt, it might feel counter-intuitive to try and pay those loans off faster. After all, paying off your loans faster generally means paying extra each month towards your outstanding loan principal, which may mean less savings and less money to spend on the things that might bring you a little extra joy each month–like those infamous avocado toasts or $8 cups of coffee.
If you’ve double-checked your budget and you do have the financial ability to pay a little extra to your student loans each month, there are a couple reasons you may want to pay off your student loans faster, including:
When you pay extra towards your student loan principal each month, you’ll steadily reduce the amount that accrues interest each month. Over time, you’ll end up repaying less over your repayment period than you would have if you’d stuck to making only your minimum monthly payments.
See it for yourself! Explore repayment scenarios with our student loan payoff calculator.
If being in debt stresses you out, then knowing that you’re on your way to getting rid of your student debt more quickly might give you some added peace of mind. By paying off your loans sooner, you may not have to worry as much about not being able to pay your loans in the future.
If either of these reasons for paying off your student debt faster sound appealing, here are a few strategies you might be interested in using to pay off your student loans faster.
The “snowball method” is a method of paying off your student debt by paying off your loans in order of increasing loan size.
With the “snowball method,” you would first apply all extra payments to your student loan (or subloan or loan group) with the smallest outstanding balance. Once you’ve paid off that loan, you would then start applying the total amount that you were paying to the smallest loan (monthly minimum + the extra payment) to the next smallest loan as the new total extra payment. Each time you pay off a loan (or subloan), you continue to roll over the total amount that you were paying to the next target loan as additional payment.
Though you may not end up saving as much in interest payments as with other strategies, the snowball method is a great strategy for tackling your student debt in incremental pieces. Additionally, the sense of progress you get from paying off loan balances can be a great way to build or sustain your motivation to pay off your student debt!
The “avalanche method” is a method of paying off your student debt by paying off your loans in order of decreasing interest rates.
With the “avalanche method,” you would first apply all extra payments to your student loan (or subloan or loan group) with the highest interest rate (regardless of its balance size). Once you’ve paid off that loan, you would then start applying the total amount that you were paying (monthly minimum + the extra payment) as an extra payment to the loan with the next highest interest rate. As with the snowball method, each time you pay off a loan (or subloan), continue to roll over the total amount that you were paying to the next target loan as extra payment.
The pros of using the avalanche method to pay off your student debt? By tackling your highest interest loans first, you’ll save more money on accumulated interest. The cons? You may not get frequent positive reinforcement on your payoff progress the way you may with the snowball method, so paying off your debt with the avalanche method will require more patience and commitment.
With either the snowball or the avalanche method, you’ll want to follow similar steps to pay off your debt with both strategies. To get started:
A.k.a the “leave it to your servicer” method. Under this method, direct your servicer to apply any extra payments you make on top of your minimum payment to your outstanding loan principal and let your loan servicer handle how to allocate the payments. Many servicers by default will follow an avalanche-like method for overpayments and apply your overpayment to your loan group with the highest interest rate first.
The pros of this method are that it’s simple and you’ll still pay off your loan faster and save more money on interest over time. The con is that you have less control over where your payments go (potentially leading to a less “optimal” pay off strategy) but you can always take the reins back at any time.
The last strategy that we’ll discuss is one that you can actually use with any of the three strategies mentioned already, and that is: using an employer student loan repayment benefit to pay off your student debt faster.
With an employer student loan repayment benefit, your company will contribute extra payments towards your student loans each month to help you pay down your loans more quickly! You can use these extra monthly payments to supplement part or all of the extra payments that you want to make towards your target student loans under either the snowball method, avalanche method, or “leave it to your servicer” method. Just be sure to let your loan servicer know that they should apply these contributions towards your loan principal (and not advance your due date).
If your company doesn’t currently offer an employer student loan repayment benefit, you can absolutely ask them if this is something they'd consider adding to your company’s benefit package. Download our employee toolkit to help get the conversation started.
The best method for paying off your student debt faster is whatever strategy ultimately works for you based on your financial situation, goals, and other available options.
If you know that you want to get rid of your student debt ASAP and you've run the numbers (or know that your employer will help contribute extra to your student loans), any of the strategies in this post can help you pay off your student debt faster, saving you time and money in the long run.
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Disclaimer: This article is purely information and is not intended as financial or legal advice. For more in-depth questions on how to pay off your student loans, we recommend you speak to a financial advisor or similar licensed expert.
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