Janice Lozano
Paying off student loans early or paying more than the minimum amount is an option for those who want to get out of debt faster. However, there are a few things to keep in mind when it comes to advancing the due date on student loans. Firstly, it's important to understand how payments are allocated across loan groups, as payments are typically applied to accrued interest and late fees before reducing the principal balance. This means that advancing the due date may not be the most financially prudent option, as it does not reduce the loan's balance as quickly. Instead, borrowers can instruct their loan servicer to apply overpayments to the principal balance, thus reducing the interest accrual and total cost of the loan. While there is no prepayment penalty, borrowers should be aware of the potential impact on their eligibility for borrower benefits and repayment incentives. Additionally, those pursuing Public Service Loan Forgiveness or on Income-Driven Repayment plans should be mindful of how prepayments affect their loan terms.
| Characteristics | Values |
|---|---|
| Should you pay off student loans early? | Paying off student loans early or paying more than the minimum does not carry a penalty. |
| How to pay off student loans early? | The fastest way to pay off student loans includes paying interest while in school, using autopay, and making bi-weekly payments. |
| What is the "Do Not Advance Due Date" option? | When you pay more than your current amount due, your due date on loan groups in repayment status will advance by one month each time you satisfy the regular monthly payment amount for that group. |
| How does the "Do Not Advance Due Date" option work? | When you make an additional payment to pay down your loan faster, you can typically specify that you want the extra payment applied directly to the principal by checking the box "do not advance due date." This helps reduce the interest accrual and total cost of your loan. |
| Why should you choose the "Do Not Advance Due Date" option? | The "do not advance due date" option reduces your principal balance faster, minimizes interest accrual, and decreases the overall cost of your loan. You’ll also be on pace to pay off your loan sooner than your original term. |
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What You'll Learn
Selecting do not advance due date
When paying off student loans, it is important to understand how your payments will be allocated. This will help you decide whether to select the "do not advance due date" option.
If you pay more than your current amount due, your due date on loan groups in repayment status will typically advance by one month each time you satisfy the regular monthly payment amount for that group (also known as being "paid ahead"). This means that your extra payment will be used to cover future payments, and you won't be required to make payments during those months. However, the loan balance will continue to grow due to accrued interest, and more interest will accrue over the life of the loan because your repayment term remains the same length.
Selecting "do not advance due date" means that extra loan payments are applied to the loan's principal, not fees and interest first. This helps to reduce the interest accrual and the total cost of your loan, and you will be on pace to pay off your loan sooner than your original term. This option is especially beneficial if you have a federal loan with an income-driven repayment plan, where your monthly interest accrual exceeds your monthly payments. In this case, applying the extra payment directly to the principal will reduce future interest accrual.
You can instruct your loan servicer to apply overpayments to your principal balance and keep the next month's due date as planned. This can be done online, by phone, or by mail. Additionally, you can specify that you want the excess payment (overpayment) to be applied across all loan groups in repayment status, helping to keep the due dates aligned for all loan groups.
It is important to note that there are no prepayment penalties for paying off student loans early or paying more than the minimum. However, student loan servicers may use your extra payment to advance your due date. Therefore, it is recommended to always select the "do not advance due date" option if you want to minimize interest accrual and pay off your loan sooner.
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How to make extra payments
Making extra payments on your student loan can help you pay off your loan faster. Here are some ways to make extra payments:
"Do Not Advance Due Date"
When making an additional payment, you can specify that you want the extra payment applied directly to the principal by selecting the "do not advance due date" option. This option is typically available on the lender's website. This strategy reduces your principal balance faster, minimises interest accrual, and decreases the overall cost of your loan. It is important to note that lenders will often automatically advance your due date if you don't specify otherwise, so always select the "do not advance due date" option if you want your extra payment to be applied to the principal.
Lump-Sum Payment
You can make a lump-sum student loan payment on the due date. This strategy can save you money on interest. For example, if you owe $10,000 with a 4.5% interest rate, paying an extra $100 every month on a standard 10-year repayment plan can make you debt-free about five and a half years ahead of schedule.
Monthly Interest-Only Payments
If you are still in school or during your grace period, consider making monthly interest-only student loan payments. This will help you avoid capitalization, which occurs when interest is added to your principal loan amount, increasing the total amount you pay over time.
Principal-Only Payments
Making principal-only payments on your student loan, either monthly or occasionally, can help speed up the payback time and lower your overall borrowing costs. However, you may need to take extra steps to ensure that your extra payments go towards the principal and not future interest. Online payment platforms often allow you to specify that extra amounts are principal-only payments.
Refinancing
If you have private loans, you may be able to refinance to save on interest. This can help you pay off your loans faster.
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The impact of advancing due dates
When you pay off your student loan early, your due date for the next payment is automatically advanced by your lender. This means that your extra payment will be applied to the next month's payment. However, you can choose to not advance the due date by selecting the "do not advance due date" option.
Advancing a student loan due date won't help you pay off your loan faster. This is because your extra payment will first go towards any late fees and accrued interest before reducing your principal balance. As a result, the loan balance continues to grow due to accrued interest. Since the principal isn't reduced as quickly, more interest accrues over the life of the loan because the repayment term remains the same length.
Selecting the "do not advance due date" option means that extra loan payments are applied to the loan's principal, not fees and interest first. This helps reduce the interest accrual and the total cost of your loan. You'll also be on pace to pay off your loan sooner than the original term.
Other considerations
If you're on an Income-Driven Repayment (IDR) plan, your due date cannot be advanced beyond your annual IDR anniversary date. Additionally, if you're pursuing Public Service Loan Forgiveness, prepayments may impact qualifying payments.
It's important to understand how your payments are allocated across your loan groups. Payments are typically applied to accrued interest first, then late fees (if applicable), and finally towards the principal balance. If you have multiple loans with different interest rates, it's recommended to pay off the higher-interest loans first.
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Strategies to pay off student loans faster
Paying off student loans can be a daunting task, but there are several strategies that can help you become debt-free faster. Here are some methods to consider:
"Do Not Advance Due Date" Option:
When making extra payments, look for the "Do Not Advance Due Date" checkbox. Selecting this option ensures that your extra payment is applied directly to the principal amount, reducing the interest accrual and the total cost of your loan. Most lenders will advance the due date if you don't specify otherwise, so remember to check this box.
Make Extra Payments:
If you can afford to, making extra payments towards your student loan can significantly speed up your repayment timeline. You can instruct your loan servicer to apply these extra payments to your principal balance, which will reduce the interest you pay over time. Even paying a little extra each month can make a big difference.
Start Early:
Consider making student loan payments during your grace period or while you're still in school, even if it's not required. Paying interest while in school can reduce your total loan cost. If possible, try to pay enough to cover the interest you're accruing each month to prevent it from compounding.
Refinance Your Loan:
Refinancing involves replacing multiple federal or private student loans with a single private loan, ideally at a lower interest rate. Opting for a shorter repayment term can help you become debt-free faster, but it may increase your monthly payments. Be sure to use a loan simulator to estimate your monthly payments and overall repayment amount before refinancing.
Dedicate Your Tax Refund:
If you receive a tax refund, consider putting it towards your student loan debt. You may have received a refund due to a tax deduction for paying student loan interest, so using that money to pay off your loan can be a wise strategy.
Side Hustle and Budgeting:
Increasing your income through a side hustle or freelancing can provide extra funds to put towards your loan. Additionally, creating a budget can help you understand how your student loans fit into your finances and identify areas where you can cut back on spending to allocate more money towards loan repayment.
Remember to research loan forgiveness and repayment assistance programs, as well as eligibility requirements, to explore all your options for paying off your student loans faster.
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How to lower student loan payments
Paying off your student loan early can be a great way to reduce the interest accrual and total cost of your loan. However, if you are looking to lower your monthly student loan payments, there are several options to consider. Firstly, it is important to contact your loan servicer as soon as you anticipate missing a payment to discuss your options. They may be able to provide you with a modified repayment plan or postpone your payments under deferment or forbearance.
For federal student loans, you may be able to lower your monthly payments by enrolling in an Income-Driven Repayment (IDR) plan. These plans tie your monthly payment amount to a percentage of your income, which can be as low as 10%-15%. This can be especially beneficial if your income is variable or if you are facing financial hardship.
Additionally, when making extra payments towards your student loan, consider selecting the "do not advance due date" option. This option ensures that your extra payments are applied directly to the principal amount, reducing the interest accrual and the overall cost of your loan. Most lenders will automatically advance your due date if this option is not selected, which may not be the most effective use of your extra payments.
If you have private student loans, there are typically no standard options to lower your monthly payments. However, you can discuss your situation with your loan servicer to explore alternative solutions or payment plans that may be available to you. It is important to remember that missing student loan payments can have serious consequences, including negative impacts on your credit score and potential legal actions. Therefore, being proactive and communicating with your loan servicer is crucial in managing your student loan payments effectively.
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Frequently asked questions
When you pay off more than your current amount, your due date on the loan gets advanced by a month. However, if you select the "Do Not Advance Due Date" option, your extra payment will be applied to the principal amount, not the fees and interest. This will reduce the interest accrual and the total cost of your loan.
You can instruct your loan servicer to not advance the due date either online, by phone, or by mail.
Selecting the "Do Not Advance Due Date" option will help you pay off your loan faster by reducing the principal balance more quickly, minimizing interest accrual, and decreasing the overall cost of your loan.
If you select the "Do Not Advance Due Date" option, you will not have the option of a free "forbearance" if you ever need it since the due date will not be advanced.
Yes, you can pay more than the minimum, refinance your loan to get a lower interest rate, use autopay, or make bi-weekly payments.
