Should You Pay Off Your Student Loans Early - Earnest | Earnest

Should you pay off your student loans early? Here's when to do it—and when it’s smarter to wait

By Corey Buhay | Published on June 1, 2026

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Key takeaways

If you’re like most people, you’ve probably been dreaming of being debt-free from the moment you paid your first student loan bill. But just because you can pay off your loans early doesn’t necessarily mean you should.

It’s true that early payoff can leave you with a huge sense of relief. But it can also leave you with an empty bank account. Here’s how to decide whether zeroing out your loans early is worth it—and when it makes more sense to wait.

Is paying off student loans early always a good idea?

Like most big financial decisions, early student loan payoff can have unintended consequences—from unexpected penalties and fees to an irreversible depletion of your cash reserves. That means it’s not the right call for everyone.

That might not be what you want to hear. And we get it: when you’re fed up with making loan payments, it can be really tempting to throw everything you’ve got at your principal just to make it go away. But the best financial decisions rarely come from a place of strong emotion. Instead, it’s better to take a breath, evaluate your finances objectively, and decide whether the pros outweigh the cons.

Pros: When early loan payoff can be a smart move

Paying off your student loans earlier than planned comes with many benefits. In addition to the sense of accomplishment you’ll feel after hitting such an important milestone, you’ll also enjoy a few of the following advantages.

You could save on interest

Paying interest is usually the thing that draws student loan payoff into a multi-decade process. By paying off your loans early, you can nip your snowballing interest in the bud and save money in the long run.

Let’s say you have an extra $6,000 in your savings account. Now let’s say you choose to put that cash toward your student loan as an extra prepayment. In this example, you’ve got a $30,000 loan with a 10-year term and a 5% fixed interest rate. If you put a $6,000 lump sum payment toward that loan balance right now, you’ll save $3,222 in interest over the life of the loan.

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*Rate and payment example listed above is for illustrative purposes only and may not be representative of rates or terms offered by Earnest. Please check with your lender to determine how the additional funds will be applied to your loan.

You’ll get out of debt faster

One of the most frustrating things about student debt is the time you spend paying off your loans. A lump sum payment could take years off your repayment schedule and make the payoff deadline feel less overwhelming.

Let’s look again at the example of that $30,000 loan above. If you make that $6,000 payment now, it will help you pay off the loan 2.4 years faster compared to a regular payment schedule.

You can move on to new financial goals

More than 70% of American student loan borrowers say they’ve put off buying a home, car, or other purchase because of student loan debt. Once you’ve paid off your student loans, you can focus on other priorities—like starting a family or taking that long-awaited vacation. No matter what you do, having more disposable income in your bank account can make a big difference in your quality of life.

It could lower your stress levels

Over 73% of student borrowers report that their loans contribute to their financial anxiety. Even if your loan is one of many bills, crossing it off your to-do list will give you a sense of relief. In some cases, the mental health boost might be worth more to you than any potential savings from keeping the loan longer.

Cons: Why you might want to wait to pay off your loans

Before putting an additional payment toward your loans, recognize that it does come with some risks.

You might make more by investing your extra cash

If you’ve got extra money sitting around, you’ll need to decide whether to put it toward your loans or to invest it. In an earlier example, we showed what could happen if you put an extra $6,000 toward a $30,000 student loan balance. (The result was $3,222 in interest rate savings.)

However, in that example, the loan had a 5% interest rate, which is fairly low. If you can get a higher percentage return on an investment account, it might be better to put your extra $6,000 there instead.

For example, let’s say you can get a 6% annual return on your investments. In that case, you’ll earn $4,745 over the next 10 years—a lot more than the amount you’d have saved by using your $6,000 as a prepayment on your student loan.

Right now, the average annual return on investments in the U.S. stock market is 10% per year. So, if your student loan interest rates are significantly lower than 10%, investing in the stock market could be the smarter decision, provided that you’ve got a good financial advisor or some solid investing know-how.

You might get charged a prepayment penalty

Some lenders charge borrowers if they pay off their student loans early. The exact amount depends on the lender or the repayment plan, but it’s usually a percentage of the loan. If you have federal student loans, you don’t need to worry. You can prepay all or a part of your loan at any time, and you won’t be charged anything.

Private student loans work differently. While we at Earnest never charge our customers a prepayment fee, some lenders might. The best way forward is to call your lender and ask if you’re not sure.

Paying off your loans early could hurt your credit score

If you pay off all your loans at once, you could see your credit score drop. That’s because your student loan was probably among the first forms of credit you ever took out. So, when that disappears from your credit report, the average age of your open credit accounts goes down. Since credit bureaus award higher scores to folks who have been using credit for longer, a shorter apparent credit age can drop your score. The good news: This dip is usually short-lived, especially if you maintain good financial habits like paying your bills on time and in full. After a few months, your score should bounce back. So, unless you need to max out your credit score for an upcoming credit application, this shouldn’t be the sole factor to deter you from paying off your loans early.

You could use the money to build an emergency fund

Before you dump a significant amount of money into your student loans, make sure you still have enough in reserve. Pop quiz: Is the amount in your savings account enough to cover you in case of an emergency? If the answer is yes—and you don’t have any other significant expenses coming up—then it could be smart to put your extra cash toward a loan.

If you don’t currently have an emergency fund, however, consider creating one to give yourself a financial cushion. The last thing you want is to drain your savings on student loan repayment—only to get slammed with a layoff, medical crisis, or other financial emergency right after.

When early payoff makes sense—and when it doesn’t

Paying off your student loans early could make sense if:

Paying off your student loans early might not be the best decision if:

There’s a way to lower your interest rate in the meantime

Let’s say you want to pay off your loans early but you’re stuck with a high interest rate that’s making it impossible to get ahead. In that case, there’s an intermediate step you can take: refinancing.

Refinancing your student loans could help you secure a lower interest rate on your current debt. That can reduce interest rate drag and help you save more aggressively. Plus, once you have a lower rate, a higher proportion of your future prepayments will go toward the principal, rather than just chipping away at your interest.

If you want to see what kind of impact refinancing could have on your loans, use a refinancing calculator to see what your monthly payments could look like. If your loans are more complicated, an online tool like Payoff Path can help you more clearly visualize your choices. All you need to do is input a few loan details. Then Payoff Path will determine your repayment options and calculate which one could save you the most money over time.

Is it worth it to pay off my student loan right now?

Deciding whether to clear your student loans at once is a personal choice. While paying off your loans quickly can bring relief and savings, it’s not something you should do without considering other factors. If you’re an Earnest borrower, rest assured that you can pay off your loans without being hit with surprise fees or charges. Whatever decision you make, make sure it’s the one that will align with your priorities and bring you closer to what you want in life.

How to pay off student loans early if you decide to

If you decide you’ve got enough savings and cashflow to justify early loan payoff, more power to you. Here’s how to get it done.

How to use refinancing as a path to faster loan payoff

Paying off your student loans can sometimes feel like the end-all-be-all of financial happiness. There’s something noble-feeling about buckling down, making sacrifices, and hammering at your loans until the debt is gone. But while American culture celebrates debt freedom at all costs, it’s not always the right decision for everyone.

If you’re still building up your savings and don’t have the free cash or flexibility to pay your loans off right now, that’s okay. Wait as long as you need to. This is your financial journey, and only you know what’s best for your situation.

In the meantime, refinancing could be a natural stepping stone. If you qualify for a lower rate, it could accelerate your savings progress, shorten your loan term, and maximize the impact of every future prepayment.