Pros and cons of paying off student loans early

Paying off student loans early could save money but there are some downsides to consider. 

You may be considering completing your student loan payoff early if you're one of the 43 million Americans who currently has education debt. The average student loan borrower owes $33,654, according to data from Credible, with total student loan debt in the U.S. approaching $1.6 trillion.

Paying off student loans early could make sense if you're financially able to do so and you're not trying to qualify for student loan forgiveness. Shortening up the standard 10-year repayment plan for federal student loans or a similar timeline with private student loans means you could begin working toward your other financial goals that much sooner. 

You could choose to refinance student loans if you simply want a lower monthly payment. With student loan refinance interest rates so low, you could lower your monthly payment and save money on interest. But how much could student loan refinancing save you?

With an online tool like Credible, you can compare refinance loans from multiple lenders to see if taking advantage of record low student refinance rates is the right move. 

As you manage your student loan payoff plans, it helps to consider the pros and cons of repaying federal student loans or private student loans ahead of schedule. Here's a closer look at what paying off student debt early involves.

Pros of paying off student loans early

  • It's cheaper to pay student loans off early: One of the best reasons to consider paying off student loans early is to save money on interest charges. Even though student loan interest rates may be low, the longer your repayment term, the more you pay in interest. Trimming any amount of time, whether it's a few years or a few months, from your student loan payoff could save hundreds or even thousands of dollars.
  • Frees up money to pay down other debt: Not having a monthly student loan payment can put more money back into your budget that you could apply to other debts. If you have credit cards or a car loan payment, for example, you could use the money you'd been earmarking for student loan payoff to erase those debts faster. That could help you save even more money on interest charges. 
  • It can help with obtaining other funding: Paying off student loans early can help improve your debt-to-income ratio since you'll have less money going to debt each month. You could also see a credit score boost once your paid-off loans show up on your credit history. Less debt means a better credit utilization ratio, which could make it easier to qualify for other loans or lines of credit when you're ready to borrow. 

Refinancing your student loans, however, is also a smart way to reduce your monthly payment, lower your loan interest rate, or — in many cases — both. Click here to compare student loan refinancing rates from up to 10 lenders without affecting your credit. Plus, it's 100% free!


Cons of paying off student loans early

  • It means less money in your budget that could be saved: Paying off student debt early means allocating a larger portion of your budget toward those loan payments. And, in turn, that may mean less room in your budget to save money for emergencies or other financial goals. Not having an emergency fund could mean taking on credit card or loan debt if you're in a tight spot and need to borrow money to cover an unexpected expense.
  • It reduces the average age of your accounts: Part of your credit score is based on credit age, or how long your accounts have been open. Paying off college debt early can lower your average credit age, which could cause you to lose a few credit score points. That's important to know if you're working on building your credit history or you plan to apply for new loans down the line. 
  • There may be a fee: One thing to watch out for with an early student loan payoff is a prepayment penalty. Some lenders build this fee into your loan agreement as a condition of repaying loans. This can be a flat fee or a percentage-based fee but either way, it's important to check the fine print to see if you'll be penalized. 


Should I pay my student loans off early?

Deciding whether to accelerate your student loan payoff or not depends on your personal financial situation, how much you can afford to pay and what you could potentially save by doing so. It's also important to consider how much you have in savings in case a financial emergency comes along. 

Consider whether refinancing student loans could be the better option. Student loan rates for private loans are at historic lows so you may be able to save a significant amount of money by refinancing.

Visit Credible to learn more about private student loan refinancing and compare student loan refinance rates from multiple lenders without affecting your credit.  

Using an online student loan repayment calculator can also help with making a decision. You can compare the numbers to get an idea of how much you could save when increasing your monthly student loan payment by different amounts.