How To Pay Off Your Student Loan Early and Save Money in 2025

The U.S. Department of Education (ED) reports that 42.7 million borrowers owe more than $1.6 trillion in federal student loan debt, which comes to an average of $37,470 per borrower. That balance can grow over time as interest accrues.

You may want to pay off your student loans early to lower the lifetime cost of your loans. Early student loan payoff can help you save hundreds of dollars — or even thousands — in interest and free up room in your monthly budget.

Here's what you need to know about paying off student loans early.

Current student loan refinance rates

Why pay off student loans early?

Though paying off your student loans ahead of schedule has a number of financial benefits, Mark Kantrowitz, student loan expert and author of the book “Who Graduates from College? Who Doesn't?” emphasizes the emotional upside of early payoff.

“Prepaying your student loans gives you a sense of freedom, since you are no longer yoked to making monthly student loan payments,” says Kantrowitz. “It alleviates financial stress.”

But those financial benefits are certainly important. By paying off your loans early, you reduce the amount you pay in interest over the life of the loan, lowering your total cost of borrowing. It improves your monthly cash flow since it eliminates your monthly student loan payment and offers you more financial flexibility. Kantrowitz also points out how an early payoff can help your credit.

“Prepaying your student loans will improve your debt-to-income ratio, making it easier for you to qualify for new debt, such as mortgages, auto loans, and credit cards,” he says.

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What strategies help you pay off loans faster?

A number of strategies can help you speed up student loan repayment, including:

• Make extra principal payments: With this strategy, you send more than the minimum amount to your loan servicer each month (or whenever you can afford it) and let your servicer know that you want to apply the extra money to your principal. This will lower your loan principal faster, reducing the amount you pay in interest over time.
• Schedule biweekly payments: Instead of making a single monthly payment, split your student loan payment into 2 biweekly payments. It feels like the same thing to your budget, but you'll end up making 13 monthly payments instead of 12. This virtually painless change to your payment schedule allows you to make 1 full extra monthly payment per year.
• Apply windfalls: Anytime you receive unexpected money, such as a bonus at work, a big tax refund, an inheritance, or a generous birthday check, put a large chunk of your windfall toward your student loan. Since you weren't expecting to receive the money, you won't miss it, and helping pay off your debt is an excellent use of a windfall.
• Use the debt snowball method: With this strategy, you'll work on paying off the loan with the smallest balance first, while making minimum payments on your other loans. Once that loan is paid off, you roll over that payment into the next-smallest loan, which can create momentum as you move toward larger balances. This method may not save you the most interest in the long run, but it can help you stay motivated by providing quick wins early in the process.
• Use the debt avalanche method: With the debt avalanche, you focus on paying off the loan with the highest interest rate first. Once the highest-rate loan is paid off, you roll over that payment into the loan with the next-highest interest rate. By tackling high-interest debt early, you reduce the total amount of interest you'll pay over time. This method is ideal if you're looking to minimize your overall costs.

Read More: How To Pay Off Student Loans: A Guide To Becoming Debt-Free

How does refinancing affect early payoff?

Under some circumstances, refinancing your student loan may help you accelerate repayment. For example, if your student loan has a high interest rate, refinancing could reduce your rate, helping you pay off your debt faster and save money over time. Just remember, this strategy works best for borrowers with good credit and a stable income, since favorable rates are generally only available to highly qualified borrowers.

Check Out: When Should You Refinance Student Loans?

Refinancing may also speed up your repayment timeline since you can select a shorter repayment term for your new loan. However, keep in mind that a shorter repayment term comes with higher monthly payments.

How to model early payoff scenarios

If you're trying to determine how to set up your early student loan payoff, it can help to crunch the numbers before you get started. Specifically, you need to understand how the extra payments to your student loans may affect your budget.

Adam Minsky, an attorney who works with student loan borrowers, cautions against getting overzealous in your pursuit of debt freedom.

“Borrowers should consider whether paying off student loans early would be financially risky, such as by depleting emergency savings,” he says.

That's why it's important to use calculators like the Department of Education's loan simulator, which helps you calculate your monthly payments and determine how long it might take to pay off your loans under each federal student loan repayment plan. You can also use a student loan repayment calculator, which allows you to calculate various early debt payoff scenarios.

See Also: The Federal Student Loan Repayment Calculator: How To Estimate Your Payments

Here's an example of how it might work:

The average undergraduate borrower leaves school with $29,300 in student loan debt, according to the College Board. Using the current interest rate of 6.39% for federal Direct Subsidized Loans, the table below shows how various early payoff strategies would affect a standard 10-year repayment plan.

The table looks at four scenarios:

• A standard repayment plan where the borrower makes normal monthly payments
• A biweekly repayment plan where the borrower pays half the monthly amount every 2 weeks, which means 1 extra payment a year
• A plan where the borrower makes extra principal payments with every monthly payment by rounding the payment up
• A plan where the borrower applies windfalls to the student loan

Check Out: How To Calculate Interest on Student Loans

What to consider before paying off loans early

With all of the benefits of early payoff, there are some definite drawbacks to consider before you jump in with both feet. Kantrowitz echoes Minsky's warning about depleting your emergency fund and suggests beefing up your savings before embarking on a debt payoff journey.

“You should save half a year's salary in an emergency fund to cover your expenses in case you find yourself between jobs,” he advises.

But draining your liquid funds isn't the only potential issue with early payoff. You'll also need to determine if your lender has any policies regarding prepayment. While Kantrowitz assures borrowers that “federal and private student loans do not have prepayment penalties,” that doesn't mean that prepaying has no consequences.

For example, federal student loan borrowers might lose out on potential loan forgiveness programs or other repayment benefits by prepaying their loans. Additionally, while paying down your student loans will improve your debt-to-income ratio, paying them off could have a negative impact on your credit because it will limit your credit mix and shorten the length of your credit history.

The benefits of nixing your student loan debt generally outweigh the downsides, but it's helpful to understand potential drawbacks you may face.