Content of the material
- Should You Pay Off Your Student Loans Early?
- 3. Pay extra each month
- 8. Pay off your higher-interest loans first
- CARES Act Automatic Federal Student Loan Forbearance
- 1. Look into student loan forgiveness programs
- Public Service Loan Forgiveness (PSLF)
- Military student loan forgiveness
- Teacher Loan Forgiveness Program
- Pay More than Your Minimum Payment
- What should you do before paying off your student debt early?
- 3. Research federal loan cancellation or discharge
- When She Realized She Had to Make a Change
- Examples of paying more every month
- How do I check my student loan balance?
- The Bottom Line
Should You Pay Off Your Student Loans Early?
For some people, paying off student loan debt as quickly as possible is their biggest financial goal. But there are times when you shouldn’t rush to eliminate your student loans.
For example, you may not want to sacrifice your future retirement for a faster student loan payoff. If your employer matches 401(k) contributions, for instance, it could be wise to contribute what’s needed to get the match in lieu of putting more money toward your student loan balance.
If you’re trying to buy a house, start a family or launch a business, you may want to beef up your savings instead of throwing extra money toward your loans. If you don’t have an emergency fund, then you should likely make that a priority instead of paying off your student loans.
Additionally, if you’re eligible for any kind of loan forgiveness program, you might want to reconsider paying off your loans faster. You may end up saving more by opting for loan forgiveness, even if you’re technically paying off your student loans for a longer period of time.
But if the above scenarios don’t apply to you, then paying off your student loans early may be the right financial decision.
3. Pay extra each month
If you can pay a little bit of extra money toward your loan each month, you'll pay down your loans faster. Just be sure to specify that you want the extra payment applied to reduce your principal. Otherwise, loan servicers might simply apply the extra money towards the next month's payment instead of using it to reduce your loan amount.
8. Pay off your higher-interest loans first
If you have multiple different loans, focus on making additional payments towards the ones with a higher interest rate first. This will allow you to get rid of your more expensive debt ASAP, which makes it less costly to repay what you owe. That can make it easier to become debt-free faster.
CARES Act Automatic Federal Student Loan Forbearance
If you have a student loan owned by the U.S. Department of Education, the government has granted you automatic forbearance on this loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. On April 6, 2022, the Biden administration extended the forbearance period, allowing loans to stay in forbearance through Aug. 31, 2022.
Between March 13, 2020, and Aug. 31, 2022, no interest will accrue, and you don't need to make any payments. No late fees will apply if you stop paying during this period. You'll know you have this benefit if you see a 0% interest rate when you log in to your student loan account. On March 30, 2021, the Department of Education extended this benefit to defaulted privately held loans under the Federal Family Education Loan (FFEL) Program.
Under normal circumstances, you can't make progress toward loan forgiveness during forbearance. But under the CARES Act, you can. You'll receive credit toward income-driven repayment forgiveness or public service loan forgiveness for the payments you normally would have made during this period.
There may be tax obligations tied to any loan forgiveness.
1. Look into student loan forgiveness programs
If you have a federal student loan, you might be eligible for student loan forgiveness, where you’d no longer need to repay some or all of your loan. (Note that if you don’t qualify for a student loan forgiveness program, you’re still responsible for paying back the loan.) Here are a few common types of federal student loan forgiveness programs.
Public Service Loan Forgiveness (PSLF)
If you work full-time for a U.S. federal, state, local, or tribal government or not-for-profit organization, you might qualify for the Public Service Loan Forgiveness Program (PSLF), which forgives your remaining loan balance. To qualify, you need to have made 120 qualifying monthly payments while working for a qualifying employer. Note that if you work part-time for more than one qualifying employer and your weekly work hours total 30 or more, you can be considered for the program.
Military student loan forgiveness
If you’re currently in or have served in the military, you could qualify for loan forgiveness under PSLF. If you served in a location where there was hostile fire or imminent danger, you might qualify to have half of your loan canceled if your service ended before Aug. 14, 2008. If you served on or after that date, you might be able to have your entire loan forgiven.
Teacher Loan Forgiveness Program
If you’ve taught full-time for five consecutive years in a low-income school or educational service agency, you might get either $17,500 or $5,000 forgiven from your federal student loan. To get any forgiveness, you need to have at least a bachelor’s degree, be a state-certified teacher, and not have your certification or licensure requirements waived.
To get $17,500 forgiven, you need to be either a full-time math or science teacher at the secondary level or a special education teacher at the elementary or secondary level. All other qualifying teachers could receive $5,000 in loan forgiveness.
Pay More than Your Minimum Payment
Paying a little extra each month can reduce the interest you pay and reduce your total cost of your loan over time. Continue to make monthly payments even if you’ve satisfied future payments, and you’ll pay off your loan faster. Ask your servicer if the additional payment amount can be allocated to your higher interest loans first.
What should you do before paying off your student debt early?
Reyes says you should make sure you have paid off all of your so-called toxic debt with high interest rates such as credit cards and personal loans before making substantial payments toward your student loans.
“A lot of folks get kind of fixated on just becoming debt free and don’t realize that there’s good kinds of debt, and then there’s bad,” Reyes says. “Making sure that you prioritize paying off your toxic debt first is always a great sign to make sure that you know you’re healthy enough to pay off your student loans.”
Reyes also suggests building an emergency fund to cover three to six months of your essential expenses. This can help protect your finances if you lose your job, face a large medical bill, or incur other unexpected costs. You’ll have a safety net to fall back on instead of having to take on high-interest credit card debt or a personal loan.
3. Research federal loan cancellation or discharge
If you have a federal student loan, you might qualify for a cancellation or discharge, both of which are similar to loan forgiveness.
- Federal Perkins Loan cancellation and discharge — If you have a Perkins Loan, a low-interest federal student loan for students with extreme financial need, you might qualify for a total or partial cancellation of your loan if you teach in a school that serves low-income students, are a special education teacher, or if you teach math, science, foreign language, or bilingual education. Other qualified professions include firefighters, law enforcement officers, librarians, nurses, public defenders, speech pathologists, and volunteers with the AmeriCorps VISTA or Peace Corps. Perkins Loan discharges, where you don’t need to pay back the loan, are available under certain conditions, such as bankruptcy, death, school closure, veteran disability, spouse of a 9/11 victim, and total and permanent disability.
- Closed school discharge — You might qualify for a complete discharge of your loan if your school closes during your enrollment.
- Disability discharge — You might qualify for a total discharge of your loan if you’re totally and permanently disabled.
- False certification discharge — You might qualify for a discharge of your loan if your school certified your eligibility requirements and you didn’t meet them, if the school certified your eligibility but you had a status that legally disqualified you, or if the school signed your name on the application or endorsed a check for you.
When She Realized She Had to Make a Change
Although she had a large loan balance with some high-interest debt, it wasn’t until Becky sat down and reviewed her loan terms that she became motivated to accelerate her student loan repayment.
“I did some math and said, I want to get this over with,” she said. “I wanted to rip the Band-Aid off and get rid of the bulk of the loans that were going to cost me the most money in the long run.”
When she graduated from college, Becky had decided she planned on retiring early and pursuing financial freedom. But to do that, she realized she had to pay off her debt so she could focus on investing and growing her money.
“And that was why I really decided it was the best time to start, because if I waited, the student loan interest was just going to accrue,” she said. “It would ultimately take me longer to pay off.”
Examples of paying more every month
Assume you have a student loan with a Current Balance of $10,000, at an interest rate of 8.0%, and a repayment term of 10 years.
If you pay your amount due every month
- You’ll make 119 monthly payments of $121.32, with a final payment of $119.89.
- You’ll pay off your student loan in 10 years and you’ll pay a total of $14,556.97.
If you pay an extra $20 a month
- You’ll make 96 monthly payments of $141.32 with a final payment of $7.10.
- You’ll pay off your student loan in 8 years and one month—almost 2 years earlier than with the standard repayment term and you’ll save $983.15.
How do I check my student loan balance?
You can check your federal student loan balance by logging onto the Federal Student Aid website with your FSA ID. Here, you can access information about your loan servicers and how much you owe.
The Bottom Line
The burden of student loans can be pretty overwhelming, and student loan forgiveness is not easy to earn, no matter which route you pursue. It takes years and, ultimately, may not pay off. It puts you at the mercy of powerful student loan servicers. It subjects you to the ever-shifting political winds that seek to change forgiveness programs.
All student loan forgiveness programs come with certain conditions, requirements, and limitations. You must follow the rules to a T to qualify. If you’re already in deep, forgiveness may be the most appealing way out, especially if you’ve made life and career choices with a reasonable expectation of getting your remaining student debt erased after years of payments. Forgiveness is not the only solution to out-of-control student loan debt, however. In dire circumstances, getting student loans discharged in bankruptcy may be an option.
Student loan forgiveness might be a welcomed possibility—offering some relief to student borrowers toward the end of their repayment period—but its future is uncertain. Students should be wary of incurring debt beyond their means based on the assumption that a good chunk of it will be forgiven.