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“Should I Pay Off My Student Loan Early?” What You Need To Know, First

After graduation, student loans can throw a wrench in your budget. The hefty payments often feel like an obstacle to financial freedom.

If you have the opportunity to pay off student loans early, then you have a big decision to make. It might feel like an easy choice to eliminate student loans from your life, it’s not always the best financial move in some situations.

Personal finance isn’t one-size-fits-all. You’ll need to explore a few factors to determine whether to pay off your student loan early.

Should I pay off my student loan debt early?

Depending on your situation, paying off your student loans might be the right move. But in others scenarios, it makes more sense to work on other financial goals.

Here are some of the questions you should ask yourself as you consider eliminating your student loan payment for good.

Do I have credit card debt?

Credit cards can be useful financial tools. You can use credit cards to stretch your dollars further through rewards strategies. Plus, you have easy access to extra credit if you need to cover your expenses in a pinch.

However, it can be easy to get in over your head with credit card debt. With high interest rates, credit card debt can add up quickly.

If you have a lot of credit card debt, focus on paying down those balances before making any extra payments on your student loans.

Since student loan interest rates are often significantly lower than credit card interest rates, you’ll make more progress by paying down your credit cards first. As an added bonus, you might see a boost to your credit score if you pay down your credit card with a high APR.

Do I have an emergency fund?

An emergency fund is an important part of a solid financial foundation. With an emergency fund, you’re better prepared to handle anything life throws your way. Whether you face unemployment or a major car repair, an emergency fund can come in to save the day.

Most experts recommend building an emergency fund with three to six months of expenses. You can also build up your emergency fund by depositing your savings into a high-yield savings bank account.

If you don’t have an emergency fund in place, work on that goal before paying off your student loans. But if you already have an emergency fund, then it might be wise to pay off your student loan early.

Am I contributing to my retirement?

Retirement is a major expense that takes years to save for. It’s important to start building your retirement savings as soon as possible.

If you are still in your 20s, you have the added opportunity to take advantage of the effects of compound interest. Compounding takes your retirement account to the next level.

Are you not saving for retirement yet? Then it’s smart to focus on building up your retirement plan before tackling all of your student loans. Once you have a retirement plan in place, you can decide if paying off your student loans early fits into the big plan.

What kinds of student loans do I have?

Borrowers with federal student loans have access to several programs that will disappear by paying off loans early. For example, making extra loan payments under PSLF isn’t a good idea.

But if you have private student loans, the choice is entirely different. Since those loans aren’t protected by federal programs and benefits, it can make sense to pay off your loans early. That is — if you don’t have a more pressing financial issue to address.

As a holder of private loans, the alternative is taking advantage of low-interest rates with student loan refinancing. A lower rate lets you use the extra money in your budget toward another financial goal, like a home down payment or beefing up your retirement savings.

Does my student loan have an early prepayment penalty?

If you decide that paying off your student loan balance early is the right choice, don’t forget to check your loans have prepayment penalties. You don’t want to be forced to pay excessive fees for the simple right to pay off your loan in advance.

Not sure if there is a prepayment penalty? Ask your lender for clarification.

How quickly can you pay off your student loans?

There are several payment options you can consider if you’ve decided this is the right path for you. Here are some of the strategies to pay off your student loans early.

Biweekly payments

Let’s say that you have a student loan balance of $25,000 at a 5% interest rate. Currently, you’re making monthly payments of $250. But you decide to make biweekly payments to total $500 each month.

Here’s what you’ll see when using the Student Loan Planner Calculator.

As a result of your extra payments, you can pay off your loan six years and one month early! That’s a significant improvement, especially because you’ll save $4,315 in interest payments along the way.

Lump-sum payments

Let’s say that you have a student loan balance of $25,000 at a 5% interest rate. Currently, you are making monthly payments of $250. But you decide to make a lump sum payment of $10,000.

Here’s what you’ll see when using the Student Loan Planner Calculator.

Thanks to an extra lump-sum payment, you can pay off your loan five years early! It’s important to note that you could’ve paid this loan off faster with the biweekly method. But you’ll save $5,055 in interest payments.


Let’s say that you have a student loan balance of $25,000 at a 5% interest rate. Currently, you’re making monthly debt payments of $350. But you decide to make extra monthly payments to total $500 each month. Plus, you can refinance your to better loan terms through a private lender with a lower interest rate of 3%.

Here’s how much you can save through refinancing.

As a result of your extra payments and a refinance, you can pay off your loan four years and three months early! That’s tremendous progress. Along the way, you’ll save $4,833 in interest payments.

The bottom line

College graduates know that once their grace period is up, the constant need to make monthly student loan payments can be a financial burden. In extremely difficult situations, you can tap into options such as forbearance or deferment as a last resort. But it’s better to remove these loans from your life for good, before it gets to that point.

If you’re ready to tackle your student loan debt, then take advantage of our free student loan calculator. Explore your options based on biweekly, lump-sum or extra monthly payments.

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