How Quickly Should You Pay Off Student Loan Debt?

Student debt can feel like an overwhelming, insurmountable obstacle to becoming debt-free. As you enter your career after graduating from college, you may be wondering how quickly you should work at paying off debt. Should you pay off your student loan debt early? Or, does taking a long-term approach to debt make more sense?

This is a question that is determined on a case-by-case basis, but here is a closer look at what your repayment plan should look like, and when it makes sense to make extra payments to pay off student debt early.

Key Factors that Determine What Your Repayment Plan Should Look Like

Each individual is going to have a different repayment plan for their student loan debt, and it will be based on several factors. Here is a closer look at each one.

1. The Amount of Student Debt

First, the amount of your student debt is going to make a difference in how quickly you can pay it off. It has a direct impact on your payment amount, which will determine if you can afford to make extra payments. The interest rate is tied to the amount, as higher interest rates mean a higher monthly payment and a more substantial total amount of repayment.

2. Evaluating Your Income

Finally, your income has a direct impact on how quickly you can pay. Paying off debt is important, but you should also be building up your savings to protect your financial future.

If you opt for an income-based repayment plan, your monthly payment is based on your salary. If your first salary is low, you will have a small monthly fee for that year. Each year you will re-submit your salary and family size information. If your salary increases, your payment will increase. If your family size increases, your amount may decrease.

To pay the loan off more quickly, you may need to increase your income so you can make additional payments. Use bonus payments and salary increases for those extra payments. Consider taking on a second job or ask for overtime at work, and apply all of that money towards your debt until it is paid off.

For example, even just an extra $100 per month can help you pay off your loan years ahead of schedule. For example, $10,000 in student loan debt with a 4.5% interest rate would be paid off five years early with just $100 extra per month, according to NerdWallet. To make these additional payments work, make sure to tell your loan servicer to apply them to the principal balance, not the next month’s payment.

3. Timing of Debt Repayment

The timing depends on your repayment plan. The Standard Repayment Plan and Graduated Repayment Plans pay off the debt over 10 years. Extended Repayment Plans increase the repayment period to 25 years, according to the government’s StudentAid program.

Does student loan debt expire? No, but it may qualify for loan forgiveness after a set period. For example, income-based repayment plans require 20 to 25 years of repayment, followed by loan forgiveness.

Most loans have a six-month grace period, so use that time to find work. During the grace period, use this Repayment Estimator from the Office of Federal Student Aid to determine the qualifying repayment plan that works best for you. Next, research the repayment plan options available to you, and choose one that works well for your income and repayment goals.

Also, it would help if you considered whether you qualify for student loan forgiveness. Paying off the loan early if you do qualify for forgiveness could mean paying more than you should. If you don’t qualify, then you should plan to pay off the loan as quickly as you can.

When to Apply for Student Loan Forgiveness

As many as 50% of people with student loans may qualify for loan forgiveness, the Collective Investor states. So, when should you apply for loan forgiveness? According to the National Education Association, maximizing loan forgiveness starts with using income-based repayment. Then, as soon as the borrower has qualified employment, he or she should fill out the required forms for their loan forgiveness program.

Once approved for forgiveness, the borrower will receive documentation outlining how many payments are needed before the loan is forgiven. The timing may depend on the type of loan forgiveness used, but the sooner the borrower applies, the better the borrower can plan for their loan repayment.

Learn more about your options in our How-to Super Guide to Pay Off Debt.

The Earlier, The Better!

When deciding what your repayment plan should look like, you must factor in all three of these items. After evaluating your income, timing, and loan amount, you can create a plan that works for your needs.

The longer you are in a repayment plan for student debt, the more your interest payments will be. For borrowers who do not qualify for loan forgiveness, paying off the loan more quickly makes sense for both peace of mind and the health of your credit score.

So, it’s crucial to weigh all options, and not to neglect savings and other investments, but when possible, paying off debt over the short term makes more sense financially than dragging it out as long as possible. Finally, make a plan that includes extra payments, then stick to that plan to pay off your debt over time.