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Best Way to Pay Off Student Loans Faster

Furthering your education is great, but it comes at a cost.

Justin Cupler

Contributing Writer at Tally

October 6, 2021

In the second quarter of 2021, student loan debt in the U.S. passed the $1.7 trillion mark, giving the average borrower about $30,000 in student debt. Fortunately, there are ways to pay off student loans faster and save money in the process. 

Student loans also have other programs, like loan forgiveness and special repayment plans, to further simplify the repayment process. 

What's the best way to pay off student loans? Here are nine options. 

9 ways to pay off student loans faster

When you're fresh out of college and starting your career, it can be a drag to contend with student loan debt. There’s no one best way to pay off student loans, but using a few different paydown strategies could speed up the process significantly. Kick your repayment into high gear while you're young and take advantage of these nine tips for faster student loan repayment. 

Make extra payments each month

Making extra payments to your lenders each month can pay down your student loan quickly. Review your budget carefully. See if there's extra money or if you can free up cash by cutting unnecessary expenses or taking on a side hustle

Apply that extra money to your payment every month and watch your student loan balance fall. Remember to let your student loan servicer know to apply any additional student loan payments to the principal balance and not to the next month's payment. This may be a checkbox option on your statement or in the online payment interface. 

With this approach, you can cut significant time off your student loans. For example, according to Bankrate’s calculator, if you have a $25,000 student loan with the typical 10-year repayment term and 3.73% interest, you'd have a $249.92 monthly minimum payment. This would cost you $4,990.07 in interest over the decade-long repayment term. 

If you added just $50 per month to that payment, it would shave about two years off the repayment term and lower the interest you'd pay to just $3,980.74.

Set up biweekly payments

If you split your student loan payments into biweekly installments, you'll end up making one extra full payment per year. This additional payment could help you pay off your balance faster. 

Using the example above, switching to a biweekly student loan repayment plan would knock just over a year off your repayment term and cut the interest you'd pay to $4,558.14.

Let your servicer know the extra payments you make will apply to your balance and not future payments. Also, ensure both monthly payments are in by your due date to avoid any late fees.

Apply any found money to your balance

Found money is any cash you weren't expecting. For example, an unexpected bonus,  raise or cash award. You weren't expecting this cash, so it's not earmarked for anything. One option is to apply it to your student loan debt. 

If you received a $100-per-month raise at work, leave your budget as is and tack your take-home increase — the $100 raise minus any applicable income taxes — onto your monthly loan payments. 

Using the numbers above, if your take-home portion of that raise was $80, this would shave just under three years off the repayment term and lower the amount of interest you'd pay to just $3,551.82.

Alert your lender to apply these extra payments to the loan's principal balance and not future payments. 

Ask for cash instead of gifts

This holiday season, what better gift to give than a debt-free life? Instead of asking for gifts for birthdays and holidays, request cash so you can repay your student loans. 

As soon as you receive these cash gifts, apply them to your student loan balance. Again, alert your student loan servicer that you want these extra payments applied to the balance, not future payments. 

Refinance private student loans

Federal student loan interest rates range from 3.73 to 6.28%, so refinancing these into a lower interest rate would be difficult. However, private student loan interest rates can vary wildly from 0.99% variable APR to 12.99% fixed APR

If your loans from private lenders fall on the higher end of the interest rate spectrum, consider student loan refinancing to secure a lower-rate loan. This would save you on your monthly payment and reduce the interest you pay over time, speeding up the repayment process. 


Pay capitalized interest while in school

If you have direct unsubsidized federal student loans, they accrue interest while you're in school. The interest is capitalized and added to your principal balance after you graduate, increasing your repayment amount. 

If you opt to pay this interest capitalization while in school, you can drastically lower your principal balance at graduation and potentially accelerate your repayment term. 

Keep in mind; if you're a dependent student, you can earn up to $6,660 per year without impacting your financial aid. If you're an independent student, this limit increases to $10,360 if you're single or $16,620 if you're married. 

Set up automatic payments

If you set up automatic payments on your student loans, you could get an interest rate discount. Federal student loan servicers offer a 0.25-percentage-point interest rate reduction for autopay, and some private student loan servicers do too. 

With less interest to pay, any extra payments you make will have a larger impact on your balance.

Take advantage of taxes

If you get an income tax refund, apply it to your student loan balance instead of spending or saving it. Plus, the IRS allows you to make an income tax deduction of up to $2,500 in student loan interest when filing your taxes. Applying this deduction may add a few hundred dollars to your refund check. 

Pursue student loan forgiveness

Your federal student loans may be eligible for a student loan forgiveness program if you work in specific occupations, such as: 

  • Teaching

  • Public service

  • A nonprofit organization

  • The armed forces

For example, if you're a teacher at a qualifying school, you can receive up to $17,500 in loan forgiveness after five years of teaching. 

If you work in public service for:

  • A federal, state, local or tribal agency 

  • The military

  • A Section 501(c)(3) nonprofit 

As a full-time employee for 10 years while on an income-driven repayment plan, you may be eligible for public service loan forgiveness after 120 monthly payments. 

Generally, these repayment programs include a 20- to 25-year loan term, so this forgiveness could cut your repayment term in half or more. 

Save future stress by paying off your student loans early

Paying off your student loans early not only frees up your cash flow today but also sets you up for future financial successes like funding retirement accounts. “Future you” will appreciate the help. 

With our nine best ways to pay off student loans, you can easily execute this goal and set yourself up for a more secure financial future. 

Looking for ways to pay down other debt, such as credit card debt? Consider Tally†, a debt repayment app that can make it easier to pay down credit card debt.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.