Should you pay off your student loans early?

As 2023 drew to a close, roughly one-third of borrowers with federal student loan debt were over the age of 35, according to Federal Student Aid data. If you’ve been repaying student debt for years, it might sound like a huge relief to be able to pay it all down. But there are also downsides to take into consideration, such as a bigger squeeze on your finances in the meantime. Here’s what you need to know. 

Should I pay off my student loans early?

Even if it feels tempting to get rid of your student loan debt, it's important that you don't neglect other financial priorities. Paying off your loans early can be beneficial to your financial situation if you can answer "yes" to the following questions:

• Do you have an emergency savings account? If anything were to happen, whether it's a surprise medical bill or an unanticipated job loss, it's important to make sure you have enough emergency funds to fall back on.
• Do you have any other high-interest debt? While you may feel eager to get rid of your student loan debt, it can be more economical to get rid of any higher-interest-rate debt that you have first (such as credit card debt). This helps reduce the total amount of interest you'll pay over time.
• Do you have a steady, reliable income? If you have a sustainable income or a steady side hustle, then you can feel secure that you'll have future paychecks waiting for you when you make additional payments or put extra money toward your student loan payoff.
• Do you have a retirement account, and have you started saving? Even if you feel light-years away from retirement, it's critical to start saving sooner than later. Avoid diverting money away from building your retirement account, as doing so will cost you the compound interest that could have built up during that time.

Related: 8 ways to pay off $100K in student loans

Pros and cons of paying off student loans early 

Pros of an early payoff

Borrowers who pay off their student loans early can experience several financial advantages. Whether you have federal or private student loans, there’s generally no penalty for paying off your loans in full, at any time. Some of the pros of an early payoff include:

• You can save money on interest: By paying off your student loans early, you'll less interest over the life of the loan. Even though student loans tend to have lower interest rates than other types of debt, you can still pay less overall by curtailing the number of months that interest would continue to accrue.
• You can lower your debt-to-income ratio: Your debt-to-income ratio (DTI) compares your monthly debt payments to your gross monthly income, and is expressed as a percentage. Lenders tend to look for a lower DTI because it shows you're able to handle your existing debts. An early payoff on your student loans can lower this ratio, making it easier to access other types of loans. 
• You can pursue other financial goals: With your student loan payments off your plate, you'll free up more funds to devote to other financial goals, whether that's accelerating your retirement savings or stashing away money for a down payment on a new home.

Cons of an early payoff

Paying off loans early isn't always feasible, and it's not the best choice for every borrower. Before you commit to an early payoff, it's important to weigh the downsides:

• Your monthly payments will be higher: Paying off your loans within a shorter time frame will translate to steeper payments each month. Ensure your budget can handle a larger chunk of your income going toward student loan repayments.
• It could take away from other financial goals: If you're focusing all of your energy on paying down your student loans early, you may inadvertently fall short in other areas. Whether you have to delay your retirement savings or put off buying a home, prioritizing your student debt could take away from your other goals.
• You may lose out on forgiveness opportunities: If you have federal student loans, an early payoff means you won't be able to take advantage of federal forgiveness programs that you may be eligible for now or in the future.
• You won't be eligible for certain tax deductions: While it's not necessarily worth keeping debt around just to land a tax benefit, know that once you pay off your student loans, you'll no longer be able to claim a tax deduction for student loan interest paid. This deduction can be up to $2,500 per year.

Tips to pay off your student loans faster

Even if you're not able to write out a big check to pay off your loan, there are still ways you can expedite the payoff process. Some options to pay off your student loans faster include:

• Pay more than the minimum amount: If you pay more than the minimum payment due each month, you'll end up ahead in repayment in the long run. You'll also pay less over the life of your loan, as those extra payments will reduce the amount of interest you're charged.
• Pay biweekly: Instead of making loan payments once a month, consider making payments every two weeks, or biweekly. Doing so will translate to making one additional full payment per year, which will help speed up the loan repayment process.
• Apply for forgiveness: Securing student loan forgiveness can prevent you from needing to pay back your full loan balance. These programs may be available to employees working full-time in eligible public service roles (Public Service Loan Forgiveness), or through an income-driven repayment plan that discharges the remainder of the financial aid you received after you make a certain number of payments.
• Refinance for a lower rate: When you refinance student loans, you replace your existing student loans with a new student loan servicer, ideally with a better interest rate and a more favorable repayment timeline (it's generally harder to refinance with bad credit). This could make it easier to pay off your loan more quickly.

Keep in mind that if you refinance federal student loans, you'll lose access to federal forgiveness, income-driven repayment plans, and other federal protections like deferment and forbearance options.