Paying off your loan completely can give you a tremendous sense of relief. It can feel like the sooner you clear the debt, the better. With the debt paid off, you won’t need to worry about making sure you have sufficient funds to cover those monthly loan repayments. You’ll also no longer have to keep track of due dates and payment amounts. Above all, with the debt cleared, you’ll finally have the freedom and flexibility to pursue your other goals.

The thought of being debt-free early can motivate to explore your early student loan repay options. While that does seem like a good idea, there are situations when it may be better to wait.

Pros And Cons Of Paying Off Student Loans Early

Understanding the pros and cons of paying off your student loans early can help you determine if this is the best option for you.


  • You’ll pay less in interest over the shorter loan term as it gives the interest less time to accrue.
  • It improves your debt-to-income ratio, which will qualify you for lower interest rates on a mortgage, credit card, or vehicle loan.
  • With no monthly payments to worry about, you’ll be able to use the funds to other purposes such as a down payment or paying off a mortgage, saving for retirement, investing, or taking a vacation.


  • You’ll have to make higher monthly payments or additional payments in order to pay off your loans early.
  • You’ll have to keep all other financial goals, including building an emergency fund or saving for retirement, on hold till your loans are completely paid off.
  • If your federal student loans are eligible for forgiveness, making the required payments until the debt is forgiven is better than early repayment.

Keeping in mind the pros and cons. Here’s a look at when you should and shouldn’t consider early student loan repay options.

Consider Early Repay Options For Student Loans Under These Circumstances

#1. You Have A Fully-Funded Emergency Fund

A fully-funded emergency fund should be your topmost priority. This will help you meet any immediate, unplanned, major expenses that come up. If you’ve already put aside 3 to 6 months’ worth of expenses in your emergency fund, it’s a good idea to use your spare cash off your student loans early.

#2. You Have High Interest Rate Student Loans

Private student loans and some types of federal student loans have notoriously high interest rates. This interest keeps accruing and adds a substantial amount to the total cost of the loan. A major portion of your monthly repayments goes towards interest instead of principle, significantly increasing the total amount you’ll pay over the life of the loan.

If you have student loans with considerably higher interest rates, it makes sense to pay those off as early as possible. The sooner you pay them off, the less you’ll pay by way of accrued interest.

The only caveat to this is if you have a good credit score and strong financial credentials. In this case, you may be better off refinancing your student loans instead of paying them off early. A strong credit score will qualify you for a lower interest rate, saving you thousands of dollars in interest over the loan term.

Right now, interest rates have dropped to historic lows, making this a perfect time to refinance.

#3. Your Finances Are In Good Shape

If your finances are in good shape and you’re already contributing to other life goals, putting your disposable income towards early student loan repayment is a good idea. However, you should consider this only if you can manage both with your finances.

Before you choose the extra funds to pay off your student loans early, make sure you have sufficient funds to contribute to your long term goals too. Don’t put your long terms goals on a back burner indefinitely while you look for ways to pay down your student loans aggressively. This could set you too far back

#4. You’re Already Saving A Reasonable Amount For Retirement

If you’re already saving money for retirement, in addition to saving for your other long term goals, then you should consider your early repay options.

Do Not Consider Early Repay Options For Student Loans Under These Circumstances

#1. You Have A Lot Of Credit Card Debt

Credit cards have notoriously high interest rates. Interest rates on credit card debt are typically many times higher than the interest rate on any student loans, including private student loans. If funds are tight and you’re carrying credit card debt, it’s smarter to divert any spare cash towards paying off your credit card debt first. This will save you much more money than paying off student loans early. Learn how to pay off credit card debt.

#2. You Have Other High-Interest Debt

Maybe you don’t have credit card debt but you have other high interest loans such as a mortgage or vehicle loan. The same logic applies as earlier. You’ll save more money when you prioritize paying down the balances that carry the highest interest rates.

#3. You Don’t Have A Fully Funded Emergency Fund

Building an emergency fund is a priority. It take precedence over early loan repayment. An emergency fund refers to money set aside in a bank account specifically to cover more immediate crises. These could include illness, job loss, an unplanned medical procedure, or major car repairs. Without an emergency fund, you’ll need to take an additional loan to pay for these unexpected, unavoidable expenses. This will send you further into debt.

Starting and building an emergency fund first is a smart financial strategy. Experts recommend keeping at least 3 to 6 months’ worth of expenses in a high-yield savings account as your emergency fund. And do not use these funds to pay off student loans. Keep them strictly for true emergencies.

#4. You Haven’t Started Saving For Retirement

It may feel like retirement is a long way away and it’s just too early to start saving now. The question really is, how early is too early to start saving for retirement? There’s no one answer that’s right for everyone but starting early has a lot of benefits. For one thing, it gives your money more time to grow. You’ll be able to build a sizable retirement fund while still maintaining a comfortable lifestyle. And it will be less stressful too.

If you haven’t started saving for retirement, hold off on early repayment until you’ve given this more thought. Consider if the benefits of clearing your debt early outweigh the benefits of saving for retirement given your personal circumstances.

#5. You Get The Max Employer Match

Prioritizing retirement savings over early loan repayment is definitely better if your employer offers you a 401(k). This is a scheme in which employers fully or partially match your contributions to this type of retirement account. You can contribute up to a certain amount or up to a specified percentage of your salary into a 401(k).

In this case, the benefits of saving for retirement definitely outweigh the benefits of paying your loans early. Consider contributing the maximum permissible amount to employer-offered retirement plans so you qualify for a full match. Only explore early student loan repay options if you still have spare funds.

#6. You’re Pursuing Federal Student Loan Forgiveness

You can get part of your federal student loans forgiven if you’re employed by a non-profit organization, a public office or in a low-income school. In addition to meeting these requirements, you also need to have made a certain number of payments to qualify for forgiveness. In this case, it may be better to refrain from paying down your federal student loans early or you may not meet the minimum number of payments required to qualify.

#7. You’ve Found Profitable Investment Options

Some investments offer returns that are much higher than the interest that you pay on student loans. But investments can be risky too. You can lose money if the stock market goes down. However, if you’ve mastered the basics of the stock market or other investments and are willing to take the risk, the overall gains and potential returns are much higher than if you had used the funds to pay back your student loans.

How To Pay Off Student Loans Early

If you’ve decided that clearing your debt early is the best choice for you, here are some of the best early student loan repay options:

  • Pay more than the minimum when you can and specify that the extra money should be put toward the principle. This will help lower the outstanding principle and pay off your loans faster.
  • Put down a lump-sum payment when you have extra cash. This is the best way to use any money that you get as a gift or through tax returns.
  • Look for ways to earn extra cash that you can use to pay down your student loans. From freelancing and driving for Uber to babysitting and dog walking, there are plenty of side hustles that will allow you to complement your primary income.

If you qualify for a lower interest rate definitely consider refinancing and increasing your monthly payments to reduce the loan term. When you refinance with a lower interest rate and a lower loan term, not only will you pay off your loan faster, but you’ll also maximize your savings.

Use a refinance calculator to determine the maximum amount you can afford to pay back every month taking into account your current income and expenses and your long term goals.