As of 2010, the average college graduate had $24,000 in student loan debt. If you are disciplined in how you manage your money, you can pay off your student loan early by making extra payments. However, depending on your financial situation and other debts or goals, it might be more advantageous to put your extra money elsewhere.
Strategy
Pay off your student loans early by making a payment each month in excess of the minimum payment. Contact your lender or log onto the online account management to find out make extra payments. Each time you make a payment, it will first go toward any accrued interest and then toward the principal. If you send an extra payment with your regular payment, the entire amount of the extra payment will go toward the principal because your regular payment takes care of the interest. Find money in your budget for extra payments by working additional hours at your job, sharing your living space with a roommate or minimizing your luxury expenses.
Calculate Payment Plan
If you would like to pay off your student loans by a specific date, use a loan calculator to determine how much you should pay each month. For example, say you have $18,000 of student loan debt at an interest rate of 6.8 percent. On a regular repayment schedule of 10 years, your monthly payment would be $207.14. If you decide you want to pay off the loan within three years, you will need to pay $554.14 each month.
Benefits
Paying off your student loan debt early will free up your future income for other purposes. For example, you might want to buy a house a few years after you graduate. Most student loans have a repayment period of 10 years, or in some cases, even longer. However, if you make extra payments and pay off your loan in just three years, then you will not have any student loan payments to make and will have more money available for your mortgage payments. In addition, the sooner you pay off your student loans, the less interest you will pay on them.
Considerations
Depending on the interest rate on your student loan and what other debts you have, you might not want to pay off your student loan early. For example, if you have credit card debt at a higher interest rate than your student loan, pay that off first. If you are working for an employer that matches your contributions to a retirement account, contribute enough to get the full match before making extra payments on your student loans. If you have federal student loans with a low interest rate, you could put your extra money into investments with a higher return instead of paying off your loans early.
