Paying a little extra on a student loan can cut years off the term. Here is one example so the trade-off is concrete.
The example
$30,000 at 6.5% on a 10-year plan: about $341 a month, and about $10,880 of interest in total.
| Extra per month | Paid off in | Total interest | Interest saved |
|---|---|---|---|
| $0 | 10 years | about $10,880 | - |
| $50 | about 8 years 4 months | about $8,890 | about $1,990 |
| $100 | about 7 years 2 months | about $7,530 | about $3,350 |
| $200 | about 5 years 7 months | about $5,780 | about $5,100 |
| $300 | about 4 years 7 months | about $4,700 | about $6,180 |
Before paying extra
- Make sure the extra goes to principal. Some servicers apply extra money to future payments instead; you can usually choose this online or in writing.
- If you have several loans, extra payments on the highest-rate loan save the most.
- If you may qualify for forgiveness (for example, Public Service Loan Forgiveness in the US), paying extra can reduce what gets forgiven.
- Compare with other uses: an employer retirement match, or paying off a credit card at 20%+, usually comes first.
Make it automatic
Set the extra as a fixed amount on payday. Even $50 adds up, and you can raise it after a pay rise.
Free tools
- Student loan payoff calculator: https://smartbudgetsheets.surge.sh/calculators/student-loan-payoff-calculator/?utm_source=mataroa
- Pay off debt or save calculator: https://smartbudgetsheets.surge.sh/calculators/pay-off-debt-or-save-calculator/?utm_source=mataroa
- Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Figures are rounded examples.