Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy. Bankrate logo
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
Paying off student loans is a top priority for many recent graduates. With the average student debt now over $30,000, it’s no wonder that people want to get these loans paid off as fast as possible. But is aggressive student loan repayment always the best strategy? In this comprehensive guide, we’ll explore the pros and cons of prioritizing rapid student debt repayment so you can make the right decision for your financial situation.
What Does It Mean to Aggressively Pay Off Student Loans?
Aggressively paying off student loans means putting as much money toward your debt as possible in order to become debt-free quickly. This usually involves paying more than the standard monthly minimum payment. Strategies may include:
- Making one or more extra payments each month
- Putting any windfalls like tax refunds or bonuses toward the debt
- Making bi-weekly instead of monthly payments
- Refinancing to a shorter loan term
- Temporarily reducing expenses to free up more cash for debt repayment
The goal is to pay off your student loans in a fraction of the standard 10-year repayment period, often in as little as 2-5 years. This rapid repayment can save money on interest but also requires discipline and focus
The Potential Benefits of Aggressive Student Loan Repayment
There are some solid advantages to throwing as much money as you can at your student loans:
You’ll pay less interest overall – The longer it takes to repay your debt the more interest you’ll pay. Aggressive repayment shortens the lifespan of your loan reducing the total interest costs. This can save you thousands over the life of the loan.
Your credit score may improve – Responsible credit management including rapidly paying down balances can boost your credit score over time. A higher score means better rates on future loans and credit cards.
More cash flow is freed up – Once student debt is eliminated, the money you were putting toward loans can be redirected to other goals like saving for a house, travel, or investing for retirement.
Peace of mind – For some borrowers, student debt feels like a dark cloud hanging over their finances. Aggressive repayment can provide a sense of relief and freedom.
Potential Drawbacks of Focusing on Rapid Student Loan Repayment
However, there are also some risks and downsides to be aware of with prioritizing aggressive student debt repayment:
You may miss out on investment returns – Money put toward student loans could instead be invested, where it has the potential to generate higher long-term returns. This is especially true when markets are strong.
Less flexibility in your budget – If most extra cash is funneled to debt, you’ll have less available for unexpected expenses or purchases. This can make budgeting more stressful.
Pausing retirement contributions – Some borrowers stop or reduce retirement plan contributions in order to have more cash to pay down student debt. This can be risky long-term.
Tax implications – If loans are forgiven under an income-driven repayment plan, the amount forgiven becomes taxable income. Paying loans off aggressively avoids this tax hit.
Lifestyle sacrifices may be required – Trimming expenses in areas like dining out, entertainment, shopping, or travel may be necessary to free up more money for rapid debt repayment.
Key Factors to Consider Before Deciding
When determining if aggressive student loan repayment is the right strategy, be sure to weigh factors like:
-
Your income – The more disposable income you have, the easier it will be to rapidly pay down debt. If money is tight, more modest payments may be the prudent choice.
-
Interest rates on your loans – The higher the rates, the better it is to pay loans off quickly to minimize costly interest charges.
-
Your emergency savings – Ideally you should have 3-6 months’ worth saved before prioritizing extra debt payments. Savings preserve flexibility.
-
Other financial goals – Are you also trying to save for a house, wedding, or other major expense? Be sure to balance priorities.
-
Your expected investment returns – Compare historical returns to your loan interest rates. If returns are likely to be higher, investing may make more sense than extra debt payments.
-
Your risk tolerance – Paying off debt provides a guaranteed return. Are you comfortable with the risks of investing instead?
Alternative Repayment Strategies Besides Aggressive Repayment
Aggressively paying off your student loans in a few years is not the only approach. You also have options like:
-
Graduated repayment – Payments start smaller and increase over time. This eases initial burden.
-
Extended repayment – Stretches out payments over 25 years for lower monthly amounts. However, you’ll pay more interest.
-
Income-driven repayment – Bases payments on income and extends term. More affordable but again increases total interest.
-
Refinancing – You may be able to get a lower interest rate by refinancing, reducing interest costs over time. But this results in loss of federal loan benefits/protections.
-
Minimum payments – Making on-time monthly minimum payments is an easy default option, but means you’ll be repaying the debt over the full 10 years or more.
Seeking Professional Guidance
Student loan repayment is very personal. Consider talking to a financial advisor if you need help deciding between aggressively paying down debt, making more modest payments, or focusing cash in other areas like retirement or real estate. An advisor can review your full financial picture and risk tolerance help create a customized repayment approach.
You can also consult with student loan counselors. Many nonprofit credit counseling agencies like NFCC offer free student loan advice and debt management assistance. They can help run the numbers to see if aggressive repayment makes sense for your situation.
The Bottom Line – Choose the Right Strategy for You
When it comes to paying off student loans fast, there is no one-size-fits-all answer. The right approach depends on your income, expenses, interest rates, future goals and risk tolerance. Aggressive repayment may make sense if you have the disposable income to do so while still saving sufficiently for other priorities. But a more balanced tactic may be prudent if money is tighter or you want to focus on building retirement savings or investments. Analyze your full financial situation and future plans before committing to an overly aggressive repayment timeline.
How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
- • Mortgages
- • Loans
Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nations leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com.
- • Personal loans
- • Debt management
Calendar Icon 11 years of personal finance experience Katie Lowery is a Bankrate editor on the Loans team, where she shapes content to help people navigate personal loans, auto loans and student loans.
Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy. Bankrate logo
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
Pay off your student loans early if:
- You’re saving a reasonable amount for retirement already. If you’re already saving money for retirement and you’re on track to reach your long-term goals, it can make sense to funnel some extra cash toward your student loans.
- Your income is high enough to fund other goals. If your income is high enough that you can save for your other financial goals with cash to spare, it can make sense to wipe out your student loans faster than normal.
- You have paid off all high-interest debt. If you are free of credit card debt and other high-interest debts, that’s another sign that it could make sense to pay off your student loans early.
- You have a fully funded emergency fund. You should pay off student loans early only if you have at least three to six months of expenses in a high-yield savings account. However, don’t use your emergency fund to pay for those student loans — keep it intact and available for true emergencies.
- You have private student loans. Since private student loan rates tend to be higher and these loans have fewer borrower protections, it could be a wise move to pay them off ahead of schedule to minimize the total cost of interest.
Should You Pay Off Student Loans Early?
FAQ
Is it bad to pay off student loans too quickly?
Getting ahead of your student loan debt is generally a smart move. But, if it meansavoiding higher-interest debt or delaying an important financial goal, paying your student loans off ahead of schedule may not be worth it in the long run.
What is the 7 year rule for student loans?
Is $40,000 in student loans a lot?
The average student loan debt per borrower is nearly $40,000. With an average interest rate of 5.5%, that works out to about $393 a month. And here’s the kicker: it typically takes borrowers 17 to 23 years to pay off those loans.
What is the smartest way to pay off student loans?
The fastest way to pay off student loans is to pay more than the minimum each month. The more you pay toward your loans, the less interest you’ll owe — and the quicker the balance will disappear.