When it comes to paying off a student loan, most borrowers opt for the simpler option: regular monthly installments, often withdrawn automatically from a bank account. However, you are not limited to the standard payment schedule. If you choose to pay off your student loans every two weeks instead of once a month, you’ll pay off your loans faster and save money.
Why Bi-Weekly Payments Help You Pay Off Student Loans Faster
When you make biweekly payments on your student loans, you choose to make 26 half payments instead of the 12 monthly payments you normally would. With 26 half payments made in a year, you end up making an additional full payment on your student loan every 12 months.
The amount you can save with this method depends on how much you owe, your current payment, and the current interest rate on your student loan. However, the following example can give you a general idea.
Let’s say you borrow $36,000 in unsubsidized direct loans for your undergraduate studies, which currently charge a fixed interest rate of 3.73%. On a standard 10-year repayment plan, your monthly payment would be $359.88 and you would pay a total of $4,318.56 over 52 weeks.
Now imagine that you split your payment in half and pay $179.94 every two weeks. Over a year, that equates to $4,678.44, a full payment more than you would otherwise pay. During the 10-year plan, you’ll pay off your student loans 11 months faster.
Plus, you’ll also pay less interest by structuring payments this way. Every dollar you pay over the required amount can go directly to your main balance, meaning less of your payment is eaten up by interest charges over time.
How to set up bi-weekly payments
To set up bi-weekly payments, all you need to do is make a mental note to pay your student loans bi-weekly instead of monthly, then make sure your budget is set accordingly. Most lenders don’t have systems in place to use auto-pay every two weeks, although you can always ask your lender about your options.
For bi-weekly payments to help pay off your student loans, you will need to:
- Split your monthly payment in half. Take your regular student loan payment and divide it in half. The amount you offer is the amount you will pay on a bi-weekly payment plan.
- Pay this amount every two weeks. Instead of paying your student loan bill once a month, you’ll make the payment every two weeks.
- Make both payments before your student loan is due. Both payments made in a month must be applied to your student loan by the due date of each billing period.
- Make sure your lender is applying payments the right way. You may need to contact your lender to ensure that overpayments are applied to your student loan principal rather than future payments.
How to budget for bi-weekly payments
Making payments every two weeks means you’ll be paying a little more for your student loans each month, so you may need to adjust your budget slightly. If you get paychecks every two weeks, try aligning your student loan payments accordingly — that way, it’s easier to see how biweekly payments affect your monthly expenses.
Once you can compare this bi-weekly payment to your take home pay, make sure you have enough income to cover other major bills and expenses, such as your rent or mortgage payment, car payment, bills insurance, utility bills and typical living expenses. If you need to, cut discretionary spending where you can.
Other ways to pay off student debt faster
If you’re not sure you can afford biweekly payments on your student loans, or if you’re just looking for the fastest way to pay off your student loans, there are additional strategies that may work.
Make payments every 3 weeks
Instead of making biweekly payments for your student loans, or 26 half payments per year, consider making your full monthly student loan payment every three weeks. With this repayment strategy, you would end up making just over 17 student loan repayments per year instead of 12.
Making monthly payments every three weeks will require a greater financial commitment on your part, but the time and money you save can be significant. With the $36,000 example above, making 17 full payments per year would reduce the repayment period by three years – not to mention significantly lower total interest charges.
Consider refinancing your student loans
Borrowers may also consider refinancing their student loans with a private lender, although refinancing federal loans with a private company means missing out on federal benefits such as deferment, forbearance, and repayment plans. income oriented. If your main goal is to get out of debt, refinancing can certainly make sense.
When you refinance, you’ll get a new loan to replace your existing loans, in most cases targeting a lower interest rate. By getting a lower interest rate, you may be able to make larger payments on your principal and shorten your repayment schedule.
Before you refinance student loans, see if you can qualify for the best student loan rates and terms, and use a student loan calculator to determine the total savings.
Implement other debt repayment strategies
If you have multiple student loans and want to save money or pay off debt faster, you can also get a head start with the Snowball or Debt Avalanche repayment methods.
With the debt snowball strategy, you’ll make the minimum payment on all of your loans, then invest as much extra money as you can into your smallest loan each month. As your smaller debts are paid off, you will “snowball” those payments to the next smaller debt until all of your student loans are exhausted. This debt repayment strategy might not make the most sense in terms of savings, but it will help you reduce the number of loans you have while giving you a regular motivational boost.
With Debt Avalanche, on the other hand, you’ll make the minimum payment on all of your loans, and then pay as much as you can on the loan with the highest interest rate each month. As your most expensive debts are paid off, you will “swallow” those payments toward the loan with the highest interest rate until all of your loans are paid off. This debt repayment will help you save the most interest over time, while helping you pay off your student loans faster.
Register for Civil Service Loan Cancellation
You may consider enrolling in the Public Service Loan Forgiveness Program, or PSLF, if you plan to pursue work in the public sector. You must work for an eligible public service employer to qualify, but this plan allows you to make monthly payments on an income-driven repayment plan for 120 months before your remaining loan amounts are forgiven.
Although PSLF requires 10 full years of on-time monthly payments to qualify, this repayment plan can be a lifesaver for people who struggle to pay the payment on a standard 10-year repayment plan, as well as those who could otherwise spend decades in student debt.
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