Personal Finance

Start paying off your student loans as soon as possible, even before graduation

Key Points
  • Average student loan debt from the class of 2017 is nearly $40,000, according to Student Loan Hero.
  • Most student loans have a grace period, typically six months after graduation, before minimum payments are due.
  • Experts say to start paying back loans as soon as possible, even before graduation.
Yin Yang | Getty Images

When Ruth B., now 26, graduated from college in May 2014, she already had a few months of student loan payments under her belt.

Ruth, who asked that her last name not be used, had taken out federal loans to help cover her tuition and living expenses every year. But in her senior year her family finances changed when her younger brother started college, as well.

"My senior year I couldn't count on my mom to help me out, so I took out a private loan from Sallie Mae to cover everything that financial aid wouldn't cover," Ruth said.

Ruth realized right away that the interest rate on the loan was more than she was comfortable with, so she started making payments her senior year with money from her work-study job on campus.

"I saw it as a free period," she said. "I was able to knock out about $1,000 to $1,500 doing that, which is not insignificant."

Student debt could hold back economic growth, Fed chief says
Student debt could hold back economic growth, Fed chief says

Student loan debt in the United States is an economic crisis. According to personal finance website Student Loan Hero, 44.2 million Americans currently owe $1.5 trillion in total student loan debt. The average amount of student loan debt for graduates from the class of 2017 was nearly $40,000, a 6 percent increase from the previous year.

That amount of debt can take decades to pay back and represents a financial burden that spurs many young people to put off major life decisions, such as getting married, buying a home or having children.

Most student loans, federal and private, have a grace period between when a student graduates and when they must begin making payments. But to get a jump-start on student loan debt, and potentially save thousands of dollars, experts recommend starting to make payments on loans as soon as possible.

Yes, that even means before graduation.

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In the interest of interest

"You usually don't have to make payments while you're in school or during the six-month grace period after school," said Nikki Lavoie, a spokesperson for Navient, which provides student loan servicing for more than 12 million Americans. "But if you want to, you'll likely save money."

One of the biggest benefits to repaying loans early is reducing how much interest you're paying overall, especially on loans where interest has been accruing.

"It'll cost less in the future once you enter repayment if you get that principal down," said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors. "And it will lower your monthly payments."

Making early payments helped Ruth pay off her loan without paying a ton of interest. Today, four years after graduating, she has about $10,000 of loans left of the $37,000 she borrowed.

"I've been very strategic in how I pay everything off so I'm not getting eaten alive by paying interest," said Ruth, who now works in publishing and lives in New York.

It'll cost less in the future once you enter repayment if you get that principal down.
Elaine Griffin Rubin
senior contributor and communications specialist at Edvisors

Financial future 

Beyond the financial benefits to making early payments, there are mental advantages, too. Rubin at Edvisors says that starting payments early is a way to establish good financial habits before real life hits.

"If you are making payments, you are already establishing a routine," she said. "It's also a constant reminder that it's not free money."

Michelle L. also graduated in 2014, from a small liberal arts college outside of Boston. She started making payments on her $25,000 student loan debt right away because she started her first job three weeks after graduation.

Miranda Marquit, a financial expert and senior writer at Student Loan Hero, said that making payments right away can also help new graduates adjust to their new budget.

"A lot of people adjust to their lives in the six months before they have to start making those student loan payments," she said. "So when they have to start them, it's like a slap in the face."

For Michelle, who also asked that her last name not be used, paying back student loans early was important because she knew she wanted to go back to school. Today she is a graduate student at the University of Michigan. In the two-year gap between her undergraduate and graduate degrees, she was able to pay off $14,000 of student loan debt.

Now all she has left are federal loans, where interest will not accrue while she's in school.

Dani Hall was able to pay off her student loans early by making payments before the grace period ended.
Source: Dani Hall

No minimum 

Both Rubin and Marquit suggest getting in touch with your loan servicer before making early payments. For federal loans, students can check the Department of Federal Student Aid. For private loans, students should reach out to the servicer of the loan.

If you start to make payments before the grace period, there is no minimum payment and no penalty for prepayment. Payments can be made at any time and in any amount.

Dani Hall, 24, a residence hall director at Northern Arizona University, paid off the full balance of her student loans in February. She worked through both her undergraduate and graduate degrees to pay back the $8,000 she borrowed.

"Anytime I had the ability to put a couple hundred dollars toward them, I would," Hall said.

Even if students aren't able to repay student loans early, they should start planning for repayment as soon as possible. There are many free resources to help students calculate their student loan debt and debt-to-income ratio and how long it will take them to pay back.

Hall used the free Navient student loan repayment calculator to make a payment plan.

"When I started working full time, I did the math," Hall said, adding that she realized, "if I pay off this amount before my grace period ends, I'll have no interest."