Student loans are temporarily paused. Should you make extra
student loan payments?
Here’s what you need to know.
Federal student loan payments have been paused this year
through a mixture of congressional and presidential action. Congress—through
the Cares Act, the $2.2 trillion stimulus package—and President Donald
Trump—through executive action—paused federal student loan payments, set
interest rates to 0% and halted student loan debt collection. While these
measures are temporary, Trump extended this student loan relief through
Given this student loan relief, you may be asking: “Should I
pay off my student loans early?”
Should I pay off student loans early?
- If you have any extra cash, the answer is yes.
You should pay off student loans early. Here’s why:
- Currently, the interest rate on your federal
student loans is 0%.
- This interest rate is temporary. On January 1,
2021, your regular interest rate will resume.
- Since there is no new interest accumulating on
your federal student loans, this means that your student loan balance is not
- Every dollar you use to pay off student loans
now will first go to pay off any previously accrued interest.
- Then, every remaining dollar will directly pay
off your principal balance.
- This is huge because typically, the number one
challenge in paying off student loans is that interest accumulates and prevents
you from reducing your principal balance.
- So, this is an opportune time to pay off federal
student loans because you can lower your student loan balance more easily.
- This can help you pay off student loans early.
If you have private student loans, you can still pay off
private student loans early too and save money on interest. However, this
student loan relief applies to federal student loans.
How to pay off student loans
There are several ways to pay off student loans faster. When
it comes to extra payments, you have two primary options:
- Increase your monthly payment
- Make a one-time, lump-sum payment
It’s possible that you’re not making any federal student
loan payments right now. If you don’t have extra cash or are currently
unemployed or furloughed, you may want to take advantage of the current student
loan relief. You also may be waiting for student loan forgiveness, even if it
was cut from the latest stimulus bill. That’s ok too. However, if you have any
extra cash—literally any amount—you can make an extra student loan payment. You
can pay off student loans early (even if they are paused)—and there is no
Increase your monthly payment
If you are making regular monthly payments, you can increase
your amount by a constant amount each month.
For example, let’s assume you have $50,000 of student loan
debt, an 8% interest rate and a 10-year student loan payment term. If you pay
an extra $100 each month, you would save $4,923 and pay off student loans 1.99
This student loan payoff calculator should you how much you
You can make a one-time, lump-sum extra payment of any
amount. If you have extra cash from a bonus, tax refund, inheritance or gift,
for example, you can use the proceeds to pay off student loans faster.
For example, let’s assume you have $75,000 of student loan
debt, a 7% interest rate and a 10-year student loan payment term. If you make a
one-time, lump-sum payment of $5,000, you would save $4,062 and pay off student
loans 10 months early.
This lump-sum student loan calculator shows you how much you
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