Overpaying on Student Loans for Quicker Payoff

Paying off student loans early doesn't have to mean scrimping and saving to make double payments. Paying just a few extra dollars a month can save money and make years of difference in when your student loans are paid off.

How could adding as little as five bucks a month help you pay off your student loans faster? The amount you owe (the principal) will be reduced by each five dollars you add to your payments, but you'll also reduce your total bill by the interest you would otherwise have been charged on that amount of money. For example, at a 6% interest rate for 30 years, $5 of your loan would cost almost $24 to borrow. That's three times your payment! Think about how much you'll be saving by paying $5 extra every month.

Now, not every $5 you overpay will save you $24 in interest. This is because if you have a higher interest rate, you are charged more in interest to borrow that $5. If you have a lower interest rate, you're charged less.

The following table shows how making additional small monthly payments in year five of these consolidated student loans would make a difference in how fast the loans are paid off.



Time Saved Off Loan by Adding $5 per Month

Time Saved Off Loan by Adding $10 per Month

Time Saved Off Loan by Adding $10 per Month

$50,000 consolidated at 4% (25-year loan)

9 months

18 months

34 months

$60,000 consolidated at 4% (30-year loan)

11 months

22 months

42 months

$70,000 consolidated at 5% (30-year loan)

10 months

20 months

38 months

$80,000 consolidated at 5% (30-year loan)

9 months

18 months

34 months



Follow these guidelines if you're considering regularly overpaying on your student loan payments:

  • Commit to only making extra payments you can afford. Small payments can make a huge difference in the time it takes to pay off your loan, but it won't save you any money if you do it at the expense of other items in your budget. Don't skip a credit card payment or charge a daily expense in order to pay extra on your student loan. Only make extra payments you can painlessly afford.
  • Look at your budget to determine the exact amount you can and should spend on extra payments.
  • If you have a consolidated loan that requires a set number of payments to achieve your borrower benefits, put the extra $5 or $10 into a savings account to put toward your loan once your borrower benefits have been achieved.