The Best Time To Make Extra Student Loan Payments

Do you need to make extra payments on your Student Loans? Know when it is a good thing and when you should avoid doing so.

Updated by Vidish S on 21st February 2020

When is it a good time to make additional payments towards your student loan debt? The answer is pretty easy and it is “Right Now”. Let us understand all about this and try to avoid some mistakes made by others. But the short answer, in general, is that there is no time like the present time to put a couple of extra dents in your student loan debt.

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Is there a Need to Rush?

Your student loan statements and bills might make it seem like the interest is added every month in a repeating cycle. And while is this somewhat correct in a sense, it is not the complete picture. It is true that the interest on your Student Loan is added to your principal balance on a monthly basis, one thing many might not know is that the interest accrues daily and not monthly.

Simply put, what this means for a borrower is that the more amount you owe, the more interest is generated daily on that amount. Thus, by making additional payments, the daily interest accretion is reduced, meaning that the sooner the payments are made, the more money will be saved on the interest. That being said, the daily accumulation of student loan debt is not so substantial that a single day can make a huge difference in your student loan debt. A Student Loan of $20,000 having an interest rate of 8% will generate roundabout $4.38 in interest daily. Although a few days of interest won’t be supersubstantial, it will pile up quickly over time.

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Exceptions to the Rule of Extra Student Loan Payment

Like everything in this world, there are a few exceptions to the rule of paying extra “Right Now”.

  • Anxieties regarding Future Payments: One of the main reasons to hold off paying extra at present might be the concern that this additional payment right now might jeopardize a future payment. Having extra money now is well and good, but if there is uncertainty over the payments in the coming months, it is better to hold on to that cash and keep it safe. Although you may also be able to find some lender who will take additional payments now and count it towards the minimum payment in the coming future months. If your lender provides such payment options, then you can consider paying extra for your loans presently, after you have verified the same with your lender.

  • Better Alternatives: Although aggressive repayment is encouraged as it will help save borrowers quite a lot of money on interest. But, focusing solely on student loan debt repayment can be a big mistake. If you possess a high-interest credit card debt, it might be better to pay that off first. In the same way, if your employer matches the contributions you make towards your retirement, it would be better in the long run for you to set aside your money for your retirement. Consider analyzing how your student loan debt fits into your financial goals before you make additional payments towards the same.

  • Refinancing Your Student Loans to a Lower Interest Rate: If you refinance your student loans, your calculations for the payoff date and such will also change. Refinancing a higher interest loan to a lower interest one can also reduce the urgency to pay off the said loan. This essentially means that a lower interest rate could provide an opportunity to save up for a home, retirement fund or help towards eliminating other debts. Check out the Best Companies To Refinance Your Student Loans to learn in-depth and get the best deal.

  • Saving up for Something Else: It is just as simple as it sounds. There is no need to empty your emergency funds just to pay down on your student debt. The money cannot be retrieved once it goes to your lender under any circumstances.

Final thoughts

If you are worried whether it is the correct time right now to pay extra towards your student loan debt, then the answer is probably yes, unless you are in any one of the situations we just mentioned above. Paying extra when you have no other obligations is probably the best course of action. Student Loan Lenders are experts when it comes to taking your money for paying off what is owed to them and then some. Making a few extra payments on your student loan debt can really go a long way in helping you chisel off your debts and reducing your stress. Just make sure that you are smart about your extra payments and don’t put any extra burden on yourself while doing so.