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You may be wondering whether it makes sense to prepay student loans. The answer, not surprisingly, is that it depends. It depends upon your current financial situation, as well as your projected one. In general, there are three main issues you may want to consider:

•   Your cash reserves
•   The cost of your debt
•   The expected return on any investments

Your cash reserves are simple to understand and can be broadly summarized by your answers to the following questions:

•   Do you have enough cash saved up for unexpected bills? A commonplace goal is to hold six to 12 months in cash or very liquid, safe securities for an “emergency fund.”
•   If you lost your job, would you have enough cash reserves to find another one that you wanted?

If the answers are “no,” then building up sufficient savings before considering early student loan repayment is probably a smart idea. For the sake of this post, though, let’s assume you are okay with your cash reserves. The rest of this post can help you analyze those two key bullet points, as well as help you determine benefits of paying student loans early—and the life stages at which it might make good sense to do so.

Calculating the Cost of Your Debt

To determine the true cost of your debt, you’ll need to know what the real rate of interest is on your loans. With a credit card, it’s your annual percentage rate (APR). With student loans, the net cost of the loan is the rate you pay, adjusted for any tax benefit .

You may be eligible to deduct up to $2,500 in interest expense on your qualifying federal student loan. However, you only get this full deduction if you are making under $80,000/year ($165,000 for married filing jointly).

Calculating the Expected Return on Investments

Next, you need to determine what your expected return on investment could be for any cash that you’ve freed up and made available for investment purposes. It’s probably wise to consider the risk involved in each investment.

You can find basic information about common types of investments, such as stocks, bonds, mutual funds and alternative investments in our blog post titled, “How Investments Make Money.” This post also shares information about typical levels of risk for various investment vehicles to help you decide your personal investment risk tolerance (or whether to invest at all).

Consider Your Loan and Investment Options

Armed with all this information, you can now more easily assess your options. If it’s important to you to begin investing for retirement, then it may make sense to keep investing and paying down your loans simultaneously, as opposed to dedicating all your resources to debt pay off.

Here are a few more things to consider: First, paying down any loans will generally help improve your FICO® score. That could be important to you if you are considering a large purchase in the future, like buying a home, which takes your credit score into account. Second, when measuring investments against debt, keep in mind whether you can afford to be wrong. What if that great stock tip tanks? Are you in any financial danger having not paid off your loans and put money toward riskier stocks instead?

If you’ve decided it’s time to invest more strategically, then check out an investment account with SoFi Invest®, where you get the combined benefits of automated-investing algorithms and advice from experienced human professionals. And, if student loan prepayment intrigues you, read on, keeping in mind that advice given in this post is shared on the assumption that you have sufficient emergency savings and isn’t intended to be financial or investment advice.

Potential Benefits of Paying Student Loans Early

Paying your student loans off early can make excellent sense because you’ll pay less interest during the life of the loan—sometimes significantly less. Money you would have paid in interest can be spent elsewhere, perhaps contributing to the down payment of your dream home or invested towards your retirement, as just two examples. Just make sure you let your lender know where to apply those prepayments and that you aren’t advancing your due date!

Here’s another possible benefit: If you’re buying a house or making another purchase of significance, lenders typically want to see that your total monthly payments will fit under a certain percentage of gross monthly income, often 43%. This is typically called your debt-to-income ratio. By paying off student loans early, you can reduce your debt-to-income ratio because the size of your debt might decrease once your student loans are out of the picture.

And, let’s face it—paying off debt provides a sense of relief, perhaps even of accomplishment. So, another potential benefit of paying your student loans early is peace of mind, which is priceless.
When It Might Make Sense to Prepay Student Loans

There are some stages in life that make it easier to prepay student loans than others. Times when it often makes sense to pay early include when you don’t have many other debts of significance, when you get a nice bonus at work, or when you get a raise. In fact, any time you discover extra wiggle room in your cash flow or have an unexpected windfall, consider whether it makes sense to pay more on your student loan balance.

Warning: Loan Prepayment Penalties

While student loans do not come with prepayment penalties, other loans sometimes do. If you’re paying off a personal loan early, for example, you may be hit with prepayment penalties. So be sure to check the loan notes you signed to see whether this type of penalty is included in the terms and conditions of your loans.

If there is a prepayment penalty included in one or more of them, this generally means the lender requires you to pay a certain amount of interest before you can pay off your loan. If you pay it off before you’ve fulfilled the minimum interest requirements, you can be charged a penalty.

Different lenders calculate prepayment penalties differently so, if this situation applies to you, find out how yours would be calculated. Some, for example, may charge you a year’s worth of interest as a penalty, while another may use a percentage of remaining principal to calculate the fees. Still others have a flat fee you pay, no matter how early the prepayment or how much you owe.

Check to see if your loan allows a partial payoff without penalty. In that case, you may be able to pay your loan down faster without having a penalty attached. Also, check to see if conditions of your prepayment penalty lessen over the years. Remember, it never hurts to talk to your lender to see if there are ways to sidestep or at least reduce the penalty.

Plus, here’s a piece of information to protect you in the future: Because of the Truth in Lending Act (TILA), personal loan lenders must provide you with a document that lists any fees they will or can charge, including prepayment penalties. Armed with that knowledge, you can shop around for lenders that don’t charge them—such as SoFi.

Refinancing Student Loans with SoFi

SoFi is the leading student loan refinancing provider, with $18 billion in refinanced student loans from more than 250,000 members. Refinancing your student loans can allow you to shorten your term length, lower the interest rate on your loans, or lower your monthly payment by extending your loan term.

If you have unsubsidized federal loans, interest will begin to accrue during your six-month grace period. However, for those who qualify, you can refinance with SoFi during this period, and we will honor the first six months of any existing student loan grace period.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC .
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During this time, many Americans are taking time to reflect on the things they’re grateful for. But for some people, the season of giving thanks actually represents something that they aren’t all that thankful for—student debt. November and December mark the end of many student loan grace periods, which means this is the time of year when recent grads have to start paying back student loans.

If you fall into this category, here’s something you can be thankful for: a smart student loan repayment strategy.

Because make no mistake—paying back student loans does require a strategy, particularly for the average graduate, law or medical school grad shouldering six figures of student loan debt .

You might think it’s as simple as choosing a student loan repayment plan and writing that first check. But variables like your monthly payment amount, the interest rates on your loans, and how long you take to pay everything off can all have a big impact on your bottom line. A smart strategy optimizes these factors for your specific situation, so that you don’t spend a penny more than you have to when paying back student loans.

You can’t do anything about your grace period ending, but you can take steps to help put your repayment strategy on the right track. Here are a few tips on how you might do just that:

Know What you Owe

Chances are you haven’t looked at your loans since you signed on the dotted line, so the first thing you’ll want to do is survey the damage. You can find your federal loans on the National Student Loan Data System (NSLDS). For private loans, try gathering up your statements or checking in with your school’s financial aid administrator. If you’re really at a loss, you can pull your credit report and all of your loans should be listed there.

Once you’ve tracked everything down, make a list of your loans and their important details: the type (e.g., subsidized, unsubsidized, Grad PLUS, private), the amount and the interest rate on each one. This information will be key to determining your strategy.

Read the Fine Print

Now it’s time to familiarize yourself with the features of each loan type. A general rule of thumb is that federal loans tend to offer more hardship-based benefits than private loans—things like forbearance, potential student loan forgiveness, and income-based repayment plans. It’s important to understand whether any of these benefits apply to you before determining your repayment strategy—you’ll learn why in a moment.

Private loans don’t typically offer these same types of programs, but some of them do provide forbearance and other valuable benefits—you’ll simply have to call your lender to find out.

Do the Math

Remember when we said that various factors (such as interest rate, monthly payment amount and loan term) make a difference in your loan’s bottom line? This is the part where you discover just how much. Federal loans offer different student loan repayment options, potentially allowing some flexibility around monthly payment amount and length of repayment term (e.g., 10 years vs. 20 years).

While it may be tempting to just choose the option with the lowest monthly payments, the long-term repercussions can potentially be costly. (Meaning, lower payments typically mean longer terms, which can increase the total amount you pay overall.) You can use tools like our student loan payoff calculator to discover how long it can take to pay off your loans using different interest rates and monthly payment combinations.

Consider your Options

You may also be wondering whether to consolidate or refinance student loans. Broadly, consolidating means combining two or more loans into one loan, while refinancing student loans entails applying for a new loan at a (hopefully) lower interest rate and a new term, then using that new loan to pay off your old loans.

If you consolidate student loans through the Direct Loan Consolidation program, only federal loans are
eligible, and a primary benefit is that you can reduce the number of different loans you have to pay each month and you may get a lower monthly payment.

Direct Loan Consolidation typically won’t save you money, since the resulting interest rate is a weighted average of the original loans’ rates, rounded up to the nearest one-eighth of one percent.

So you can lower monthly payments by extending the payment term at this new fixed interest rate, but be aware that this usually means you’ll spend more on total interest over time.

You may also be able to consolidate student loans through the refinance process, and some lenders will refinance both private and federal student loans. More importantly, refinancing may potentially save you money.

In order to qualify for a lower rate, you typically need a solid income and positive history of dealing with debt. Before refinancing federal loans, you’ll probably want to determine whether any of the federal benefits mentioned above apply to you—they won’t transfer to a private lender through the refinance process. But if saving money is your top priority, refinancing may be a great option for you.

Clearly, there’s no “one-size-fits-all” approach to determining a student loan repayment strategy. But if you take the time to understand all of your repayment options, you can create a strategy that works best for your situation and potentially saves you money over the long term. And that allows you to focus on being thankful for your education rather than resenting your debt.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Paying off student loans fast is all about momentum and resourcefulness. Staying up-to-date on your payments—or ideally getting ahead of them a bit—can give you the motivation you need to tackle and clear your student loan debt as quickly as possible.
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When it comes to student loan repayment, there are two great ways to build momentum: prepaying (or paying more than the monthly minimum) and reducing interest rates (through student loan refinancing).

Here are five tips to help you build momentum, so you can pay back student loans faster and make your debt a distant memory.

#1 Learning the Benefits of Prepaying

When considering how to pay off loans fast, you may want to think about saving money on student loan interest by prepaying. That means to make payments in addition to your regular monthly payment.

Generally, there is no penalty for making extra student loan payments (check with your lender or loan servicer to verify this), and it can help you spend less on interest over the life of the loan.

If you haven’t started paying off your loans yet, you can use our student loan calculator to estimate your monthly payments. Then, you can determine how much you want to pay on top of that each month, to help pay off your student loans faster.

As a bonus, it’s amazing how motivating it can be to see your outstanding balance shrink more quickly than you planned by making more than your minimum payment each month.

An important note: Some lenders may apply the additional money to next month’s payment instead of deducting it from your student loan balance if you don’t specify where you want to apply your prepayments. If your goal is to save money on interest and be done with your loans sooner, ask your loan servicer if they can apply any extra payments to your loan’s principal instead.

#2 Taking Control of Your Spending

Prepaying sounds great, but where are you going to come up with that extra cash? You can start by taking stock of where your money currently goes.

Many of us have “leaks” in our spending that we barely notice—whether we’re springing for frequent takeout dinners or have auto-payments on magazine subscriptions that we keep meaning to cancel.

Try recording your daily spending in the notes app on your smartphone or using an app like Toshl , which can help give you better insights into where your money is going. Sites like Mint offer tools that can help you create a livable budget with room for the occasional splurge.

#3 Using Unexpected Windfalls to Grow your Proverbial Garden

Instead of treating a windfall like “fun money,” use it to get ahead on your debt. Whether you come into money through inheritance, you get a pay out from a stock you’d forgotten you owned, or your boss hands out a surprise bonus, try to put a portion of your surprise cash straight toward your debt.

And don’t just think small—see if you can apply at least 50% of any financial gifts, dividends, bonuses, and raises toward paying down your loans.

#4 Creating Another Income Stream

If your main job isn’t extremely demanding, you might consider adding a side hustle to help pad your debt payments. Sites such as Upwork can connect you with freelance work. If you don’t have the time or inclination to take on another job, you can consider becoming an Airbnb host .

According to recent analysis from SmartAsset , the average host can expect to cover 81% of their rent by listing one room in a two-bedroom apartment on Airbnb.

They also found that, in many cities, it may be possible to pay the entire rent on a two-bedroom apartment with around 20 days of bookings per month. That translates to sizable savings you can put toward your student loans.

#5 Lowering your Interest Rate

If you are a working graduate paying down high-interest student loans, student loan refinancing could be a powerful way to make a dent, if you qualify. For example, securing a lower interest rate can make a big difference in what you have to pay over time.

Bear in mind that if you have federal student loans such as Direct Loans and Graduate PLUS loans, refinancing them with a private lender like SoFi means you will lose certain benefits that come with them, such as access to the Public Service Loan Forgiveness program and income-based repayment plans.

However, some graduates may find they don’t need these benefits and that the cost-saving benefits—and faster payoffs—that can come with refinancing provide more value.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Getting married soon? Congratulations! Just be warned—there comes a moment in many weddings when half the guests suddenly slip away to watch a big game (just follow the cheers to find your wedding party).

Football especially is a pretty good analogy for a wedding – after all, in both football and marriage, you’re either tackling things together or you’re being tackled by them. Money is a common example of this (in marriage, not football), as the growing number of couples dealing with student loan debt can attest.

Whether the loans belong to you, your spouse or all of the above, once you get married it doesn’t really matter anymore. Paying off debt is now something you can tackle together. It may be tough, but with open communication and planning you can work as a team to get that student loan linebacker off your, er, back.

So what’s the best strategy for taking down student loans without letting them clobber your marriage? Here are five tips for proactively – and collaboratively – running a play that could help lead to the big pay-off: a debt-free happily ever after.

Tip #1: Create Your Big Financial Picture

Preparing to take on a big financial goal usually requires some conversation and preparation upfront. Before making any decisions, sit down and talk about your short- and long-term financial objectives, and make sure you’re both on the same page (or as close to it as possible). This can be an overwhelming topic, so see if you can break it down into chunks.

Have you established a household budget? How do student loans (and paying them off) fit into your long-term and short-term goals? Should you start aggressively paying off debt, or might it be better for you to ramp up over time? What other factors (e.g., buying a home, changing careers, having children, etc.) could affect your decisions?

Not only can this exercise help give you more clarity to create an action plan, it can also actually be kind of fun – after all, planning a life together is part of the reason you got married in the first place. The key is to listen to each other and remember that you’re both on the same team.

Tip #2: Take Advantage of Technology

Once you’re clear on the big picture, it’s time to get into the weeds. Many people have more than one student loan, often with multiple lenders, so a good place to start can be to gather all of your loan info in one place. You can use an online student loan management tool to collect this information, compare student loan repayment options, and even analyze prepayment strategies.

After crunching the numbers, your debt payoff strategy may include putting extra money toward your loans each month, which means creating and sticking to a budget that supports that goal. Platforms like Mint and Learnvest can help you aggregate household accounts and track spending.

Note: tracking your spending so precisely may feel like ripping off a bandage at first, but over time, this kind of discipline can help you better see where your money goes and help you make conscious choices about your spending. And once you have your budget in place, these apps can be set up to alert you both when spending is getting off track.

Tip #3: Define The Who, What, When

Whether your finances are separate or combined, you’ll probably want to come to an agreement on how to collectively pay all of your financial obligations. Many couples address this based on each person’s share of the total household income.

For example, if one person makes 40% and the other makes 60%, the former might pay 40% of the shared bills and the latter might pay 60%. Others find it simpler and more cohesive to have one household checking account and pay all bills from there.

However you decide to split things up, it could make things much easier to agree upon a plan that accounts for everything, because missed payments can potentially impact your credit (and/or your spouse’s), making your future financial objectives that much tougher to achieve.

Tip #4: Look For Opportunities to Optimize

Okay, so now you’ve established a plan and a budget, and you know who’s on point for each bill. You’re on the path to getting student loan debt off your plate. Is there anything else you can do to speed up the process?

Short of winning the lottery, the most common ways to accelerate student loan payoff are prepayment (meaning, paying more than the minimum) or lowering the interest rate, the latter of which is most commonly accomplished through refinancing.

If you qualify to refinance your student loans, you have a few possibilities: you can lower your monthly payments (by choosing a longer term) or lower your interest rate (which could also lower your monthly payments) – or you could shorten the payment term, and that means you could save money on interest over the life of the loan – money that could come in handy for those other financial goals you’ve both agreed to pursue.

Tip #5: Be on the Same Team

Living with debt is stressful for any couple, but being part of a relationship has its advantages, too. There’s a reason that weight loss experts often recommend finding a “buddy” to help cheer you on and keep you honest in your diet and exercise journey – and the same applies for achieving a big goal like paying off student loan debt.

Keep it positive and keep the lines of communication open, and you may even find that the journey to being debt-free makes your marriage even stronger – so you can take the hits that come your way as easily as your favorite team does.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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There are so many upsides to investing in your education—the personal enrichment and possibility of a bright and fruitful future being the most obvious. But, there are also some potential downsides that are hard to ignore, one of the main ones—if you’re like so many others—being the debt you may accrue.

Before you start losing sleep over your looming financial obligations, read on to gain a better understanding of how student loans work, starting with “the language of loans.”

Getting a grasp on certain student loan terms and concepts can benefit you in a few ways. For one thing, you’ll be able to better understand your student loan options, which means you can more easily compare features and fine print. That allows you to make confident decisions about your loans and, perhaps most importantly, save some money along the way.

So, what are the student loan terms every borrower should know? Here are a few of the big ones:

The Basics of Student Loans

Borrowing a loan can have long-term financial consequences so it’s important to fully understand the fees and interest rates that will affect the amount of money you owe. Here are a few of the most important terms to understand before you take out a student loan:

Principal

This is the original amount of money borrowed, plus any capitalized interest and fees. Capitalized interest is accrued interest that is added to the principal balance.

Term

The loan term is the amount of time the student loan will be in repayment. Loan terms vary by lender, and if you have a federal loan, you are usually able to select your repayment plan.

Annual Percentage Rate

Commonly referred to as APR—this is the cost of borrowing, expressed as an annual percentage. APR includes any fees associated with the loan, providing a more comprehensive view of what you are being charged. Depending on the fees associated with your loan, the APR could be a bit higher than the interest rate.

Accrued Interest

The amount of interest that has accumulated on a loan since your last payment.

The Potential Student Loan Pitfalls

Once you understand loan basics and have secured your student loans, there are a few more terms to know. Making sure you understand your repayment terms and options like deferment or forbearance will allow you to find the best strategy to pay off your student loans quickly.

Forbearance

The temporary postponement of student loan repayment during which time interest typically continues to accrue. If your student loan is in forbearance you can either pay off the interest as it accrues, or you can allow the interest to accrue and it will be capitalized at the end of your forbearance.

You will usually have to apply for forbearance with your loan holder and will sometimes be required to provide documentation proving you meet the criteria for forbearance. For a loan to be eligible for forbearance, there must be some unexpected temporary financial difficulty.

Deferment

Similar to forbearance, deferment is the temporary postponement of student loan repayment. During deferment, interest may or may not continue to accrue, depending on the type of student loan you have. In
the case of federal loans , the government may pay the interest on your Perkins, Direct Subsidized and/or Subsidized Stafford loans.

Capitalized Interest

This is when accrued interest is added to your loan’s principal balance. Most student loans begin accruing interest as soon as you borrow them. While you are often not responsible for repaying your student loans while you are in school or during a grace period or forbearance, interest will still accrue during these periods. At the end of said period, the interest is then capitalized, or added to the principal of the loan.

If you make your payments on time each month, you’ll keep accrued interest in check. However, after a period of missed or reduced payments (such as forbearance), accrued interest may be capitalized, which can cost you more money in the long run.

When interest is capitalized, it increases your loan’s principal. Since interest is charged as a percent of principal, the more often interest is capitalized, the more total interest you’ll pay. This is a good reason to use forbearance only in emergency situations, and end the forbearance period as quickly as possible.

Consolidation

The act of combining two or more loans into one single loan with a single interest rate and term. The resulting interest rate is a weighted average of the original loan rates.

Consolidating can make your life simpler with one monthly bill and payment, but it’s important to understand that it doesn’t actually save you any money. In fact, if you opt for lower payments when consolidating, this is typically accomplished by lengthening your loan term, which means you’ll pay more interest over the life of the loan.

The Potential Money-Savers

Building a repayment plan and sticking to it is one of the best ways to repay your student loans quickly, while spending the least amount of money on interest. Now that you understand what could cause your interest to skyrocket, here are a few terms that could help you reduce the money you spend over the life of your loans.

Automated Clearing House (ACH)

This is an automatic loan payment that transfers directly out of your bank account to your lender or loan servicer each month. The benefits of ACH are two-fold—not only can automatic payments keep you from forgetting to pay your bill, but many lenders also offer interest rate discounts for enrolling in an ACH program.

Refinancing Your Student Loans

Refinancing is the act of taking out a new loan at a lower interest rate and using it to pay off your original loan(s). Often times, refinancing your student loans allows you to lower your interest rate on your loans.

This is one of the fastest ways to slash your student loan burden. Not only does refinancing reduce the total amount of interest you’ll spend over time, but it can also decrease your monthly payments or allow you to pay off your loan sooner.

To see how refinancing your student loans could help alleviate some financial burden, take a look at SoFi’s student loan calculator. When you refinance with SoFi, there are no origination fees, application fees or prepayment penalties.

With good earning potential and credit history, you could qualify for a lower interest rate than the one you currently have. Refinancing your loans could help you manage your student loan payments.

Prepayment

Paying off a loan early or making more than the minimum payment. Both federal and private loans allow for penalty-free prepayment, which means you can pay more than the monthly minimum or make extra payments without incurring a fee.

The more you do it, the sooner you’re done with your loans—and the less interest you’ll spend over the life of your loan.

Whether you need help paying for school or help paying off the loans you already have, SoFi offers competitive interest rates and great member benefits as well.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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