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Seeing your student loan reminder pop up in your email may not be the most pleasant experience. You may fear the fact that you could be stuck with that bill 10, 20, or 30 years down the road. But what if you could get rid of that bill, paying more than the minimum balance required by your lending institution or your state’s student loan portal?

Can you prepay on your student loans? If you decide to do so, will this actually help you to save money in the long run and not just empty your wallet in the short-term? The answer to that question is “Yes!”


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Your Student Loan Information

What are the Requirements and Terms of Your Loan?

In any area of the US economy, a loan is money or a tangible item that is given to you under an agreement that you’ll make payments on the money or the item. If you have received money, you will be expected to repay the full amount plus an additional sum of money called “interest”.

You may have heard about a loan term. This is the amount of time the loan is supposed to last if you make the minimum amount of your loan payment every month. From the time you receive the loan until it is fully paid off is the loan term in years. This may be 10, 20, or 30 years—however long your student loan is supposed to last is your loan term. If you make the exact payment required every month, your loan will last until you have sent in that final payment.

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What You Will Need

  • Loan Amount
    The full balance of your loan when you first receive it is your loan amount. If you borrowed $24,000, this is your loan amount.
  • Interest Rate
    Your interest rate is the extra amount you pay each month for your education. If you look at your loan documents, you’ll see this expressed as an annual percentage of your loan balance.
  • Term (Years)
    The term is sometimes called a loan period and is the amount of years it’s expected to take to make your repayments to your lender.
  • How Much Extra You Can Pay Each Month?
    If you find you can make extra payments each month, this amount will go toward your principal balance. This helps you avoid excessive interest and helps you to pay your loan off more quickly.

I can afford to make larger payments each month.

Pay an additional $     a month.

I want to pay off my student loan as quickly as I can.

Pay back in     years.

Prepaying your student loan is a smart way to reduce your loan costs.

How to Use This Calculator

Once you’ve decided to pay your student loan off more quickly, you’ll need to know how much you’re committing yourself to each month. When you start to delve into all the available information on loans, you may come across words or terms for which you don’t know the meanings. After all, it’s not just about paying extra money. You need to know your current balance and your interest rate. What’s the APR? (Annual Percentage Rate; It’s your interest rate and fees you owe.) You’ll likely be most familiar with the monthly payment, which is of course what you’ve been paying every month.

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What is a fixed or a variable interest rate and graduated or standard repayment? A fixed interest rate stays the same over the life of the loan, while a variable rate will change based on a benchmark or index. A standard repayment means every one of your payments should be the same amount, unless you miss one, but a graduated payment means that you’ll generally start with a lower payment which will increase every 2 or more years.

Once you know how your loan works, you’ll be ready to use a loan repayment calculator. To use this loan calculator, you’ll need your total loan amount, your interest rate, your loan term or the number of years you’re expected to take to pay your loan, and you’ll need to have a general idea of how much extra you can afford to put into your monthly student loan payment each month. Because this will be a sustained effort that will take years, rather than a dozen or so months.

If you borrowed $24,000 to pay for your college expenses, you know you are expected to make a certain payment every month. This payment will be made up of your principal amount, which goes straight toward paying off your loan and the interest, which goes to the bank or government. And, the more money you can pay each month, the less you’ll pay in interest.

Why Choose Prepayment?

Why do you want to prepay on your student loan? First, it lowers the total interest you pay throughout the life of your loan—potentially thousands of dollars. You’ll also pay your loan off sooner, helping you free up that income for other items or for savings. If you were able to pay the entire balance of a government-subsidized loan before it entered the repayment period, you would never have to pay interest on that loan. By doing so, you would have made your loan interest-free.

If you have more than one student loan, to which loan should you apply prepayments? You should probably choose the loan with the highest interest rate. By doing this, you’ll save yourself even more money over the years by paying it off first.

If you have a mix of private and federal student loans, choose to make your repayments on your private student loans first—this is based on the idea that they are more likely to carry a higher interest rate than what you have on your federal student loans. However, they also usually have fewer options for deferment or if you’re dealing with a financial hardship. Choosing the loan with the highest interest rate is called the Avalanche Method.

When you begin to make prepayments on your student loans, make sure you notify your lender that the amount of prepayment should toward the principal, not the interest. Otherwise, they will automatically apply it to your interest. This applies especially when your loans are in deferment status, including grace periods and while you’re in school. If you are in the Income-Based Repayment program, making sure this is being done is especially important.

How Extra Payments Help

How Extra Payments Help Pay Off Loans Faster

The most direct way to pay off your student loans more quickly is to simply pay more than the minimum balance you see on the bill or on your computer screen. Even if you can only pay $75 extra per month, that will speed up the lowering of the principal balance. This is the most effective way of paying your bill of more quickly. Even if you can’t pay $100 or more, any amount is good.

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Refinancing your student loans may also allow you to reduce your debt more quickly. Depending on your career or job, you may be able to apply for student loan forgiveness. However, you’ll have to meet certain criteria in full to qualify. If you are an employee in a federal agency, a medical professional, lawyer, automotive worker, or public servant, you may qualify for this advantage. And don’t forget about using tax credits or deductions, either.

What if You Can’t Make Regular Extra Payments?

If you’re already paying more than your minimum balance on your student loans, you should feel good about what you’re doing. But, what if life gets in the way? If you’re standard work week doesn’t seem to be leaving you anything extra to put toward your school loans, there are still options for lowering the length of your repayment.

You could freelance or work a side job and use those earnings for your student loan payments. You could apply any new income from a pay raise directly into your student loans and continue to live as you have been rather than leasing a new car or otherwise increasing your monthly budget. If you receive a tax return every year, you could put that lump sum toward your repayments, consider how much this would amount to each month if it was spread out over the whole year. You may end up taking years off your loan with this method alone.

However, there may still be other ways of whittling your loan balance down a little more quickly such as paying off the capitalized interest on your loans. For instance, if you have placed your loans into deferment, you have the choice of continuing to make smaller payments that will be applied to your interest. No, it won’t speed up the actual payoff time. But you’ll have a smaller balance when you are again earning a regular salary. You can also check out and apply for education specific scholarships to minimize how much you need to borrow to help pay for your college tuition.

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