How to start paying off student loans

Graduating college can feel like the start of the rest of your life. Exciting new career possibilities and experiences lie ahead of you. But you might also see student loan debt on the horizon.

The good news is there are lots of different strategies for paying off student loans. Talking to a financial expert first could help you identify the best options for your situation. Following are some steps you can take as you get started with student loan repayment.

What you’ll learn:

• Before you start making student loan payments, it’s helpful to get familiar with your loans and understand exactly what you owe.

• Paying more than the minimum payment, paying down the principal, making biweekly payments and paying high-interest loans first can help you pay less interest overall on your student loans.

• Income-driven repayment plans and loan forgiveness programs can lower your student debt or eliminate it.

• Consolidating your loans can help you lower the interest rates on your loans.

Before making payments, it’s a good idea to understand your loan and how it works.

If you have a federal student loan, you can visit the Federal Student Aid (FSA) website. Sign in to your FSA account to see helpful information about your loan, including your interest rate and balance. You’ll also find information about your loan servicer and how to make payments. If you have a private loan, you can sign in to your lender’s website to view your account and loan information.

Different repayment plans can help you manage your student loans. You can choose your plan from your online account—check the FSA site or your loan servicer’s site.

When you graduate from college, you may have a number of options to choose from for federal student loans, including standard repayment plans, income-based repayment plans, graduated repayment plans and extended repayment plans.

Graduated and extended repayment plans may seem appealing for recent college graduates because they typically come with a lower monthly payment. But be aware that although graduated and extended repayment plans offer lower monthly payments up front, these plans either extend the repayment timeline or set you up to make larger payments in the future. In both of these cases, it can mean that you will pay more over time.

Some lenders offer an interest rate reduction when you sign up for autopay, which could save you money over the life of your loan. For example, you can save 0.25% by having payments on direct federal loans automatically debited from your checking or savings account.

As a bonus, you’re less likely to miss a payment when they’re automatic. And that could help you avoid late fees and damage to your credit scores.

The U.S. Department of Education says learning to budget can help you make the most of your student loans and set you up for future success. And budgeting can help you keep your finances under control and understand when you need to adjust your spending. The agency has budgeting tips to help you get started.

To create a working budget, it’s helpful to understand the terms of your loan or loans. Having more than one loan can also mean you might have different interest rates, repayment terms and monthly payments.

Many loans also have a grace period, which is the amount of time before you have to begin making payments on your loans. The grace period can vary between loan servicers. Checking those dates is important for knowing when to add loan payments to your budget and how to avoid late fees.

The Department of Education offers a few programs that provide either assistance or loan forgiveness for students in certain fields or with lower incomes. And they can significantly lower federal student loan debt or erase it altogether. Some of these programs include:

• Public Service Loan Forgiveness Program: Working for a government agency or nonprofit organization as a full-time employee may allow you to qualify for forgiveness of any loan balances after making 120—or 10 years’ worth of—qualifying payments.

• Teacher Loan Forgiveness Program: Highly qualified teachers who have taught full time for five consecutive years in eligible academic settings—and meet the qualifications—may be eligible for forgiveness for part of their federal student loan balances.

• Military service: The Department of Education and Department of Defense (DoD) offer benefits, such as interest rate caps and repayment options under the Servicemembers Civil Relief Act (SCRA), to military service members.

• Income-driven repayment (IDR) plan: An IDR plan bases your loan payments on your income. The benefit is that after a certain number of payments have been made—over a certain period of time—the remaining balance could be forgiven.

Talking with an expert could help you figure out whether a program is right for you and help ensure you stay eligible.

Although it may feel out of reach when you first graduate, there are some things you can do to pay your balance down more quickly.

Here are a few strategies for paying off your student loans faster:

You can usually start paying off your loan as soon as you receive the funds. But most federal student loans don’t ask you to start paying until after you graduate or your enrollment status changes. Private student loans don’t necessarily follow the same process.

If it works for your budget, you might consider making payments before they’re required. That’s because interest can still accrue, or build, on what you originally borrowed while you’re in school. It can also happen during grace periods—and even when loans are in deferment or forbearance.

Depending on the type of student loan you have, you could be responsible for paying capitalized interest. And that could have a big effect on the total amount you owe.

By paying more than the monthly minimum, you can help yourself get out of debt sooner and pay less interest in the long run. You can do it just once or as often as you can afford to.

Got a tax refund? Work bonus? Birthday cash? You could put any of that money toward your student loan.

But if you want the benefits of this strategy, you’ll need to pay more than the minimum amount every month.

When you make extra payments or pay more than the minimum, you might be able to request that the payment go toward your principal amount owed. Since interest is based on the principal balance, paying that down could reduce the amount of interest you’ll pay. However, you’ll usually need to specifically designate that you want the extra amount to be applied to the principal.

Typically, your student loan payment goes to several parts of your loan: fees, accrued interest and the principal balance, in that order. But when you pay more than your minimum payment, you can intentionally pay down the principal amount.

Along the same lines as paying more than the minimum, paying more often could also benefit you. And lenders aren’t allowed to charge fees or penalties for prepaying as long as you make your payments on time. 

Most student loan payments are made monthly. But if it makes more sense with your budget, consider splitting your payment in half and paying twice a month instead—especially if your job pays every two weeks. By making a half payment every two weeks, you would make 13 full payments in a year instead of 12 if you pay monthly. So even if you’re just splitting the minimum amount due, you could pay off your loan faster and with less interest.

If you have multiple school loans and extra money to put toward your payments, consider tackling high-interest loans first. 

If you focus on paying off your high-interest loans first, you may reduce the total amount you’ll pay in the long run. Once you’ve paid off that loan, you can then tackle the loan with the next highest interest rate and so on. This method is commonly known as the debt avalanche method, and it can be used to pay off any type of debt.

Keep in mind that this method pertains to extra payments you make toward your highest-interest loan. You shouldn’t skip minimum payments on other loans while using this method because it can result in late fees and potentially impact your credit scores.

If your lender or servicer handles multiple loans for you, it’s important to tell them where to direct the extra money. Otherwise, according to the Consumer Financial Protection Bureau (CFPB), they might decide how to allocate the funds. The CFPB has a PDF explaining more, and it includes a sample letter you can use to give your lender instructions.

Because student loan interest is accrued based on the principal, adjusting your monthly payment can ultimately impact the amount you owe over the course of the loan.

If you can afford the monthly payments—and don’t qualify for or want to be on an IDR plan—a standard repayment plan may result in the least overall interest. It can also help you pay off your student loans faster. If you wish to switch to a standard repayment plan, it’s a good idea to talk to your loan servicer.

If you have multiple student loans or are struggling with managing your payments, you might consider ways to consolidate or refinance them. Consolidating student loans might make it simpler to manage your debts by combining them into a single loan with one servicer or lender. It might also give you a chance to lower your interest rate.

There might be drawbacks, though. According to the Department of Education, here are a few things to consider before consolidating:

• Any unpaid interest is added to your principal balance. When consolidating your loans, the unpaid interest of your original loans is rolled into your new principal balance, which may cost you more over the life of the loan. One option is to pay the interest before you consolidate so you can save in the long run.

• Not all loans have the same interest rate. Once you consolidate, your new loan will have a new interest rate. It’s based on the principal balances and interest rates of the loans you’re consolidating. If you currently have a low interest rate on some of your loans, you may notice that the interest rate on your consolidated loan is higher. This is because it’s a weighted average.

• No credit for payments already made. If your loan payment was under an IDR plan, consolidating will eliminate any credit for payments already made toward loan forgiveness. For example, even if you’ve already made 100 qualifying payments, consolidation will reset your qualifying payments to zero.

That said, consolidation can be a helpful option for many student loan borrowers. As with any loan, it’s important to do your research before choosing to consolidate.

Having student loans can help your credit scores if you consistently make on-time payments. On the other hand, missed or late payments can hurt your credit scores.

As you work on repaying your student loans, it may be helpful to regularly monitor your credit scores. You can visit AnnualCreditReport.com to get free copies of your credit reports. And you can also check your credit report and score using CreditWise from Capital One.

Before you start making student loan payments, it’s a good idea to familiarize yourself with your loans and their terms, choose a repayment plan that works best for you, consider enrolling in autopay and create a budget. You can also see whether you qualify for loan forgiveness to lower your total student loan debt. Though you may not always be able to make extra payments, you can use student loan repayment strategies to make the most of any extra cash or opportunities you encounter.

Repaying student debt in a timely manner can help build your credit scores, which can help you achieve your future financial goals. CreditWise can help you keep an eye on your progress in building your scores. Plus it’s free—whether you have a Capital One account or not—and using it doesn’t hurt your credit scores.