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Why Making Minimum Student Loan Payments Isn't Enough

By Kayla McCormack · April 05, 2022 · 8 minute read

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Why Making Minimum Student Loan Payments Isn't Enough

A minimum loan payment, by definition, is the lowest amount of money owed on a student loan each month. The actual amount owed each month will likely vary from borrower to borrower based on how much they own, the type of interest rate they have, and their repayment plan.

In some cases, borrowers may opt to make more than the minimum loan payment so that they can expedite the repayment process on their loan.

What Is the Minimum Payment on Student Loans?

The minimum payment on a student loan is the lowest amount of money a borrower can pay each month. The actual student loan minimum payment amount owed each month might be determined by factors including the loan type, interest rate, and the repayment plan. Generally, the minimum monthly payment includes both principal (the original amount borrowed), interest, and fees.

Why Would You Pay off Your Student Debt Sooner?

While the interest rate on your student loan may be lower than on your credit cards, it doesn’t necessarily mean your student loans should be put on the back burner. Prioritizing debt repayment could help lower your debt to income ratio and could help you reduce the amount of money you owe in interest over the life of the loan. Here are a few reasons you may want to pay off your student loans sooner rather than later.

Your Debt-to-income Ratio May Be Lowered

When borrowing a mortgage or a car loan, the lender will usually consider the applicant’s debt-to-income ratio. And the lower it is, the better it looks from a financial perspective. Do you need a new car? Want to buy a house? Start a family? The sooner you get your student loan debt paid off, the more money you will likely have to put toward those dreams being realized.

Your Credit Score Could Improve

Your FICO® credit score is a powerful component of your total financial picture; tend it like a garden, and it could grow. There’s something to be said for the fact that if you’re managing an open debt responsibly by making on-time payments, that may have a positive impact on your credit score. And a higher FICO® score can help you get a better interest rate on a loan you might need for a home or car.

It’s Easier to Save Money When You’re Not Paying Down Debt

The conventional wisdom is the less debt you have, the more money you likely have to save. Think of successfully managing and paying off debt as a necessary exercise routine, like working your core. As your financial “core” gets stronger, you’re likely to become better able to balance your finances and save more money.

When you’ve repaid your student loans, the money you were spending each month on loan payments can instead be used to help you reach financial goals like starting an emergency fund, saving for a down payment, or more.

Interest. Interest. Interest.

Though the interest rates are usually lower on student loans than your average credit card, those interest rates continue to accrue for the life of most student loans. (Note: The timetable of when interest starts to accrue on your student loans depends on the type of student loans you’ve been awarded. Contact your lender for all the details.)

Student loan interest does qualify for a tax deduction . But only $2,500 of the interest can be deducted each year — less if your modified adjusted gross income is greater than $70,000 a year.

Can I Pay More Than The Minimum on Student Loans?

It’s possible to make more than the minimum payments on your student loans without being charged for any prepayment penalty fees. Both federal student loans and private student loans are required to allow borrowers to make extra payments and pay off their loan early without charging any additional fees.

Making extra payments can help decrease the interest paid and help reduce the overall cost of the loan. Typically, you can contact your lender to specify that the extra payment be applied to your highest interest loan and be applied to the principal value of the loan.

Making payments directly to the principal value of the loan can help speed up repayment. And, because most student loan interest is charged per day, making additional payments on the principal value of the loan can help reduce the amount you pay in interest over the life of the loan.

How to Accelerate Your Student Loan Payments

You may be able to pay off your student loan debt more quickly by setting reasonable goals, including payments larger than the minimum required. As mentioned, both federal and private student loans generally allow for penalty-free prepayment but, as we mentioned above, contact your loan provider before doing so to ensure your prepayments are being applied how you want. Here is a ready-made checklist that may help you get rid of your student loan debt sooner.

Calculating Your Costs

Make a list or spreadsheet of all your student loans. You can use a reputable student loan calculator to help determine how much you ultimately owe (including interest) and when, ideally, you’d like to complete your student loan payments.

Making a Budget

Track your spending and make a realistic budget of your monthly and annual expenses. And leave some wiggle room for unexpected expenditures. Be honest with yourself. If you feel you’re spending too much on unnecessary expenses, maybe it’s time to skip your next urge to splurge.

Setting Manageable Goals

Now that you know how much money you have coming in and where it’s going, it might be time to make some uncomfortable-but-fair spending decisions with the intention of eliminating your student loans by your goal date. That means you may want to sacrifice some unnecessary expenses. Cutting back on non-necessities isn’t fun, but it may make it easier for you to save.

Paying Beyond the Minimum Required

As we mentioned up top, you can accelerate your loan payoff by paying more than the minimum monthly payment required by your loan provider. It’s okay to start small — even an extra $25 a month can start to add up. Paying more each month can also save you money on interest. You can even ask your loan provider to put that extra cash toward the principal.

Avoiding Late Fees

An easy way to help ensure you pay at the same time every month is to set up an auto-draft from your checking or savings account. Some lenders may even offer a rate discount to student loan borrowers who enroll in automatic payments.

Maximizing “Surprise” Money

Are you doing so well at work that you got a raise or bonus? Rather than buying a virtual reality headset, lighten the burden of your current reality by putting that money toward your student loan debt.

Finding Extra Work

Every little bit of extra income can help. A part-time job could get you closer to your goal more quickly. If fitting in an extra 15 or 20 scheduled hours a week isn’t feasible, try finding a side hustle where you can make your own hours. You can hire a dog walker, become a rideshare driver, or even recharge electric scooters — all through an app.

Recommended: What is the Average Student Loan Debt After College?

Refinancing Your Student Loans

Refinancing your student loans may offer yet another step closer to your goal. Student loan refinancing is when you borrow a new loan (which is used to pay off your original loans) at a new interest rate and/or a new term.

One potential benefit of refinancing is the possibility of securing a lower interest rate. If you have a combination of private and federal loans, it’s possible to roll them into a single refinanced loan, which means only dealing with one monthly payment instead of multiple payments to multiple lenders (and possibly shortening your repayment term). This is what is known as loan consolidation.

Note: Opting to shorten your loan term likely means paying more each month, but it also means getting out of debt a lot sooner.

It’s also very important to understand that by refinancing your federal loans, you lose federal student loan protections such as deferment, forbearance, and access to income-driven repayment programs. Take this into consideration before moving forward with student loan refinancing with a private lender. If you don’t think you’ll want or need to take advantage of federal loan protections, however, refinancing can potentially help you pay less over the life of your loans.

And as long as you refinance with a lender that doesn’t charge prepayment penalties, you can continue your accelerated payment plan and pay more than the minimum on your new, refinanced loan, too.

The Takeaway

Making more than the minimum student loan payments each month can help borrowers speed up their loan repayment and spend less in interest over the life of their loan. Lenders generally do not charge any fees for prepayment. To make the most of your extra payments, contact your lender to be sure they are being made to the principal value of the loan.

Refinancing can be another option for borrowers who are interested in securing a lower interest rate on their loan. SoFi offers competitive interest rates for qualified borrowers, and there are no application or origination fees. As a SoFi member, borrowers also gain access to benefits like personalized financial advice.

SoFi offers many resources to help you manage your student loan debt, including more tips to help gain control of your financial future — and student loan refinancing options.


What happens if I only pay the minimum on my student loans?

Making the minimum monthly payments on your student loan will generally result in your loan being paid off according to the original terms of your loan.

Is it worth paying off student loans early?

Paying off student loans ahead of schedule can make borrowing less expensive, because the borrower will likely spend less in interest over the life of the loan. Repaying student loans early could also have benefits like improving an individual’s debt-to-income ratio. Without the burden of student loans, borrowers might also be able to focus on other financial goals.

What is the average minimum student loan payment?

The average monthly student loan payment is around $400. A borrower’s monthly payment may be influenced by factors including the total amount they owe, the type of payment plan they are enrolled in, and their interest rate.

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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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