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If you want to quickly get rid of your student debt, paying more for your student loans may seem like a no-brainer. Pay more, see the balance go down, avoid the extra interest and see the loans disappear quickly.
However, for many borrowers, paying more for your student debt really makes no sense. On one side, there might be better options for using this money, and on the other hand, paying extra can actually hurt your progress in repaying your student loans (seriously).
Let's describe why it rarely makes sense to pay extra on your student loan and also talk about the few circumstances where it makes sense.
Credit: Getty
For borrowers of income-tested plans
If you follow an income-based repayment plan (IBR, PAYE or REPAIRE, for example), you probably do not have a lot of extra income to pay for your student loans. But it's in this scenario that you really feel like your loans continue to grow without you making any progress. It is important to remember that everything is fine because your loans will be canceled at the end of the repayment period if there is a balance left.
As such, it makes no sense to make additional payments. If you end up with a little extra money, use it to save for yourself – save for retirement, create an emergency fund or even look for ways to save money to reduce your student loan payments!
For borrowers applying for a forgiveness for a public service loan
If you want to apply for a Public Service Loan Forgiveness (PSLF), you really do not want to make additional payments. First, the goal is to get the maximum amount of forgiveness – and each additional payment decreases that amount.
But more importantly, if you make additional payments on your loans, you could end up in early payment status. In early payment status, your overpayment reduces your next payment. Since the next payment is lower, it will not be considered an eligible payment for PSLF.
This can pose serious problems for your PSLF eligibility and simply making additional payments could derail your loan waiver plans.
For borrowers with a little more each month
If you find yourself regularly with a small supplement each month, it does not always make sense to pay extra on your student loans. As we mentioned above, there are steps that you will probably want to take.
First, consider contributing to your own savings, especially if you can find an equivalent partner. Accounts like 401k, 403b or HSA may seem logical. These accounts not only save you money but also reduce your taxable income, which can potentially reduce the amount of your payment under the income-based repayment plan.
Second, if you have other types of debts – credit cards, private student loans – it is usually wiser to apply additional payments as a priority. Since your federal student loans include several repayment plan options, waiver programs, etc., you should tackle your other debt because many of them need to be less flexible.
Finally, you need to make sure that the basics of an emergency fund are covered and that you handle everything you have reported (such as a car repair). Prepare to be financially strong before you contribute more to your loans.
When it makes sense to pay more for your loans
There are situations where it may be wise to immediately pay extra for your loans. If you find yourself in these situations, start making progress to repay your loans faster!
All of these elements assume that you are not subject to other types of debts, such as credit cards, and that you have a simple emergency fund for your unforeseen expenses. It also assumes that you are already taking advantage of your 401k or other savings vehicle from your employer.
First, if you find yourself in the standard 10-year repayment plan and you will not qualify for any type of student loan exemption program. If you are able to pay these standard plan payments and have no hope of asking for debt relief, start paying additional debt payments. Here you have nothing to gain by only making the minimum payments, so if you can afford it, start doing it.
Secondly, if you have private loans, you do not have many options in debt. You can refinance your student loans and potentially save interest, but in the end, if you can afford to pay extra, do it!
Finally, if you meet all the criteria described above in the section on the benefit of a small supplement every month, go for it. Once you have set up financially and settled other consumer debts, start focusing on your student debt.
Last thoughts
For most borrowers, paying extra on your student loans does not always make sense. This could be more expensive, jeopardize your eligibility for canceling a student loan, and more.
However, if you have managed your other financial priorities, it might be wise to make additional payments on your student loan debt.
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If you want to quickly get rid of your student debt, paying more for your student loans may seem like a no-brainer. Pay more, see the balance go down, avoid the extra interest and see the loans disappear quickly.
However, for many borrowers, paying more for your student debt really makes no sense. On one side, there might be better options for using this money, and on the other hand, paying extra can actually hurt your progress in repaying your student loans (seriously).
Let's describe why it rarely makes sense to pay extra on your student loan and also talk about the few circumstances where it makes sense.
For borrowers of income-tested plans
If you follow an income-based repayment plan (IBR, PAYE or REPAIRE, for example), you probably do not have a lot of extra income to pay for your student loans. But it's in this scenario that you really feel like your loans continue to grow without you making any progress. It is important to remember that everything is fine because your loans will be canceled at the end of the repayment period if there is a balance left.
As such, it makes no sense to make additional payments. If you end up with a little extra money, use it to save for yourself – save for retirement, create an emergency fund or even look for ways to save money to reduce your student loan payments!
For borrowers applying for a forgiveness for a public service loan
If you want to apply for a Public Service Loan Forgiveness (PSLF), you really do not want to make additional payments. First, the goal is to get the maximum amount of forgiveness – and each additional payment decreases that amount.
But more importantly, if you make additional payments on your loans, you could end up in early payment status. In early payment status, your overpayment reduces your next payment. Since the next payment is lower, it will not be considered an eligible payment for PSLF.
This can pose serious problems for your PSLF eligibility and simply making additional payments could derail your loan waiver plans.
For borrowers with a little more each month
If you find yourself regularly with a small supplement each month, it does not always make sense to pay extra on your student loans. As we mentioned above, there are steps that you will probably want to take.
First, consider contributing to your own savings, especially if you can find an equivalent partner. Accounts like 401k, 403b or HSA may seem logical. These accounts not only save you money but also reduce your taxable income, which can potentially reduce the amount of your payment under the income-based repayment plan.
Second, if you have other types of debts – credit cards, private student loans – it is usually wiser to apply additional payments as a priority. Since your federal student loans include several repayment plan options, waiver programs, etc., you should tackle your other debt because many of them need to be less flexible.
Finally, you need to make sure that the basics of an emergency fund are covered and that you handle everything you have reported (such as a car repair). Prepare to be financially strong before you contribute more to your loans.
When it makes sense to pay more for your loans
There are situations where it may be wise to immediately pay extra for your loans. If you find yourself in these situations, start making progress to repay your loans faster!
All of these elements assume that you are not subject to other types of debts, such as credit cards, and that you have a simple emergency fund for your unforeseen expenses. It also assumes that you are already taking advantage of your 401k or other savings vehicle from your employer.
First, if you find yourself in the standard 10-year repayment plan and you will not qualify for any type of student loan exemption program. If you are able to pay these standard plan payments and have no hope of asking for debt relief, start paying additional debt payments. Here you have nothing to gain by only making the minimum payments, so if you can afford it, start doing it.
Secondly, if you have private loans, you do not have many options in debt. You can refinance your student loans and potentially save interest, but in the end, if you can afford to pay extra, do it!
Finally, if you meet all the criteria described above in the section on the benefit of a small supplement every month, go for it. Once you have set up financially and settled other consumer debts, start focusing on your student debt.
Last thoughts
For most borrowers, paying extra on your student loans does not always make sense. This could be more expensive, jeopardize your eligibility for canceling a student loan, and more.
However, if you have managed your other financial priorities, it might be wise to make additional payments on your student loan debt.
