Pay your loan back faster


Most student loans, including federal student loans, allow the borrower to prepay their loans without penalty. This means that any additional payment will reduce your total cost and help you pay your debt back faster. Some borrowers even prepay their entire loan before any interest has accrued. If you have non-federal loans, be certain to check with your lender to confirm that prepayment is penalty-free.

Most lenders will apply an additional payment to any outstanding fees before they apply it to the principal balance of the loan. However, any time you prepay make certain that the lender understands your intention. Occasionally the lender may treat the additional payment as a part of your next installment(s), which may delay the next payment due date(s). Make certain that you include a note requesting that the additional payment should be applied directly to any fees and principal.

Due to the way Pay As You Earn, income-contingent and income-based repayment plans treat interest, you shouldn't prepay if you're using one of these plans.

If you have several loans with the same lender, you may wish to specify that the extra payment be applied to a specific loan. Generally, if the extra payment is applied to the highest cost loan (e.g., the one with the highest interest rate) you will save the most money. If you do not specify how the extra payment should be applied to your loans, the lender may apply it to the lowest cost loan or uniformly to all your loans. For example, if you have subsidized Stafford loans and unsubsidized Stafford loans with the same lender, you should ask to have the prepayment applied to the unsubsidized Stafford loan. Likewise, if you have both federal and private student loans with the same lender, you should specify that the prepayment is applied to the private student loan. Otherwise the lender will apply the extra payment in a way that is in the lender's best interest, not yours.