Pros and Cons of Making Bigger Student Loan Payments

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Before You Read, Lower Your Student Payment

It’s that quick & easy — really. Our free tool checks a network of top refinance lenders and shows you options in one easy chart.

Checking rates takes 2 minutes with no impact on your credit
Federal & private loans are eligible
No maximum loan amount

If you’re looking to learn how to pay off student loans fast, making additional payments every month is one of many effective options. Making bigger student loan payments, when possible, can save you both time and money. 

But depending on your situation, you may need to ask yourself the question, should you pay off student loans early? If so, is making bigger payments the right approach for your finances?

Here are essential things you should consider, and another popular options for tackling your student loan debt in a way that saves you money.

Pros of making larger monthly payments

Paying off your student debt early isn’t always the right decision, especially if you have other important financial goals that are more important. But there are some clear benefits to eliminating your student debt sooner rather than later.

Here are some of the benefits of making additional payments on your student loan debt every month.

You’ll save on interest

When you make your monthly payment, a portion of your payment goes toward the interest that has accrued since your last bill, while the remainder directly pays down the loan’s principal amount. When you add extra cash to your monthly payment, 100% of that amount goes toward the principal balance.

That means that your accrued interest for your next monthly payment will be lower because the total balance is lower. And if you continue to make additional payments every month, it’ll have a snowball effect and save you hundreds or even thousands of dollars in interest.

For example, let’s say you have $30,000 in student loans with a 10-year repayment plan and a 5.5% average interest rate. Your monthly payment would be $326, and without any extra payments, you’d pay $9,069 in interest.

But if you were to add $50 to your payments every month, you’d save $1,621 in interest payments. Change that to $100 extra each month, and your interest savings would grow to $2,743.

You’d become debt-free sooner

In addition to saving money on interest, making additional monthly payments would also help you rid yourself of your student debt sooner.

With the previous examples, paying $50 more per month would result in your 10-year repayment plan being reduced to eight years and four months. If you add $100 more per month, you’d be done with your student loans after just seven years and two months.

If you can manage to eliminate your student loan debt early, that’s an extra few hundred dollars every month that you can start using to work toward other financial goals.

You’ll reduce your debt-to-income ratio

Your debt-to-income ratio, DTI for short, is the percentage of your monthly income that goes toward debt payments. It’s an important factor that lenders consider when deciding whether to offer you credit, especially if you’re applying for a mortgage loan.

If you can pay off your student loans early by making bigger monthly payments, it could accelerate the process of getting to the point where you no longer have that payment impacting your DTI. And depending on how much other debt you have and what your annual income is, that reduction could be enough to help you qualify for other loans, like a mortgage, with more favorable rates and terms.

Cons of making bigger student loan payments

While there are some clear perks of adding to your monthly payments, it’s not always the best path forward. Here are some reasons to think twice before making larger payments.

It could prevent you from saving for retirement

If you’re making additional monthly payments on your student debt, that’s money that you can’t use to save for retirement. And while retirement may not seem as important because it’s still decades away, the sooner you start saving for your later years in life, the easier it will be to live how you want when the time comes. 

Financial experts recommend saving 15% of your gross annual income toward retirement. Although you may not be able to manage that quite yet, it’s important to save at least some money every month toward that goal.

If you have a 401(k) plan and your employer offers a contribution match, make it a goal to save at least enough to get that match. Then if you still have some money left over in your budget, using that for extra student loan payments is one option you can consider.

That money may serve you better in an emergency fund

One of the biggest drawbacks of making additional debt payments is that you can’t get that money back when you experience financial emergencies.

Experts suggest saving three to six months’ worth of expenses in your emergency fund, but even a few thousand dollars can make a huge difference if your car breaks down, you need to repair or replace a major home appliance, or you lose your job.

If you don’t have any savings because you’ve been putting all your extra cash toward debt, you may have to turn to credit cards and other high-interest forms of credit to dig yourself out of a sticky spot. Setting aside your extra income in a savings account for a rainy day may provide you more benefits than making additional student loan payments.

You could be saving more interest elsewhere

If you already have other debts with higher interest rates, you’ll save more money by putting your extra cash toward those debt payments instead of your student loans.

Again, ask yourself the questions, should you pay off student loans early? Or is there something else that could save you more money and put you in a better financial position in the long run?

Ways you can pay more each month

If you’re planning to put extra money toward your student loans every month, here are some ways you can earn more money to make it happen:

  • Take on more hours at work
  • Get a second, part-time job
  • Look at your paycheck to see if you can reduce some deductions
  • Use your skills to start a freelancing business on the side
  • Search classified ads for small jobs
  • Sell unused items from your home
  • Use small windfalls like tax refunds and work bonuses
  • Get a credit card with cash-back rewards (and make sure to pay off your balance in full every month)
  • Use online cash-back websites to earn more rewards when you shop online

These are just a few ways to pay off student loans faster through extra payments. Take some time to research more online to find a good fit for your situation.

How student loan refinancing can help you pay off student loans more quickly

Whether or not you choose to make additional payments on your student loans, refinancing your student loans is another way to work toward your goal of paying them off early.

Student loan refinancing involves replacing one or more existing loans with a new one from a private lender. Depending on your financial situation and credit history, you may be able to qualify for a lower interest rate, which can reduce your monthly payment and save you money.

That means that any additional payments you put toward your loans every month can accelerate your payoff even more.

Plus, student loan refinancing can make it possible to reduce your repayment term. The result is a higher monthly payment, but it can be worth it to ditch debt fast with less total interest, if you have enough money in your budget.

Just keep in mind that not everyone qualifies for student loan refinancing, and while you can get a cosigner to help you get approved, that’s not a guarantee either. Also, if you refinance federal loans, you’ll lose access to some benefits, including loan forgiveness programs and income-driven repayment plans. If you’re considering refinancing, take some time to shop around and compare rates. Purefy’s Compare Rates tool can help you do this more quickly by giving you rate offers from multiple lenders in one place, so you can compare them side-by-side.

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