How to Make Extra Payments on Your Student Loans Without Breaking the Bank

Student loan debt can feel overwhelming, especially for Maryland residents who face some of the highest debt burdens in the nation. On average, Maryland borrowers owe $43,116—the highest per borrower in the U.S. As Maryland ranks 4th among the most educated states, many residents are balancing their loan repayments with other financial responsibilities, such as rent, groceries, and saving for the future.

While managing student loan debt may seem daunting, making extra payments can help you pay off your loans faster and reduce the amount of interest you owe in the long run. In this guide, we’ll break down how you can budget for extra payments without sacrificing your financial stability.

Step 1: Understand Your Loan Terms

Before making extra payments, it’s crucial to understand the specifics of your student loans. Knowing your loan terms, including interest rates, repayment plans, and potential prepayment penalties, can help you create an effective strategy to pay down your debt.

Federal Loans: Standard repayment plans for federal student loans typically last 10 years. However, if you consolidate your loans, repayment periods can stretch up to 30 years.
Private Loans: Repayment terms often range from 10 to 25 years.

Review Your Loan Terms

Start by logging into your loan servicer’s website and reviewing the details of your loans. Pay attention to your interest rates, loan balances, and repayment terms. Understanding these details will give you a clearer picture of where your payments are going and how extra payments can accelerate your repayment.

Check for Prepayment Penalties

Although many student loans allow prepayment without penalties, it’s always wise to confirm by reviewing your loan agreement. Prepayment penalties could reduce the benefits of paying off your loan early, so be sure you’re aware of any extra fees.

Step 2: Budget for Extra Payments

The median monthly student loan payment in Maryland is $232—the highest in the country. Given this, it’s important to carefully plan your finances to accommodate extra payments without putting a strain on your budget.

Track Your Expenses: Start by tracking all your monthly expenses using a budgeting app or a simple spreadsheet. Identifying areas where you can reduce spending, such as dining out, unused subscriptions, or entertainment will help free up funds for extra loan payments.
Cut Unnecessary Costs: Small changes in your spending habits can have a big impact. For example, if you reduce your dining-out budget by $50 a month, that’s an extra $600 a year you can put toward your loans. Every bit counts when tackling debt.
Create a “Loan Payment” Category in Your Budget: Adding a dedicated line item in your monthly budget for extra loan payments can help you stay committed to your goal. Even if it’s a small amount like $25 or $50 a month, regular contributions toward your debt will add up over time.
Set Realistic Goals: Don’t feel pressured to make large extra payments right away. Start with what you can afford and gradually increase the amount over time as your financial situation improves. Small, consistent payments can make a significant difference over the long term.

Step 3: Use Smart Payment Strategies

Once you’ve set your budget, there are several smart strategies you can use to pay off your loans faster and save on interest.

Make Bi-Weekly Payments: Instead of making one monthly payment, divide it in half and pay bi-weekly. This results in 26 half-payments over the year—equivalent to making one extra full payment annually. This small change can help reduce your principal balance faster and save on interest.
Target High-Interest Loans First with the Avalanche Method: The avalanche method involves focusing all of your extra payments on loans with the highest interest rates first, while continuing to make regular payments on other loans. Paying off high-interest loans early reduces the total interest paid over the life of the loan, leading to significant savings.
Try the Snowball Method: If you need extra motivation, the snowball method might be for you. This approach focuses on adding extra payments towards your smallest loan balances first, giving you quick wins and building your momentum. Once you’ve paid off the smaller loans, you can direct those funds toward larger loans.
Set Up Automated Payments and Round-Ups: Set up automated payments to ensure you never miss a due date, avoiding late fees and keeping your repayment plan on track. Additionally, some banks and apps offer “round-up” programs, which round up your purchases to the nearest dollar and apply the difference to your loans. While small, these extra contributions can add up over time and help you chip away at your balance.

Step 4: Explore SECU’s Competitive Loan Rates and Refinancing Options

As a Maryland borrower, integrating your loan repayment with other financial goals, like saving for a home or building an emergency fund, is essential. SECU offers competitive rates and refinancing options to help you: