Want to save up to $5,000?
Here’s what you need to know and how this simple trick can fatten your wallet.
Student Loan Debt Statistics
According to the latest student loan statistics from Make Lemonade, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loans. On average, graduates of the Class of 2017 owe almost $40,000 in student loan debt.
If you have student loans, paying off your student loans likely plays an important part of your life.
Here’s a simple trick to pay off student loans faster.
1. Student Loan Prepayment
If you can pay an extra $100 per month toward your student loans, you could pay off your student loans two years early and save up to $5,000.
Example: Let’s assume you have $50,000 of student loan debt, an 8% average interest rate, and a $607 per month student loan payment. Now, let’s assume you pay an extra $100 per month on your student loan, for a total of $707 per month.
Result: With only a $100 per month extra payment on your student loans, you would save $4,923 and pay off your student loans 1.99 years earlier.
This Student Loan Prepayment Calculator shows you how much time and money you can save on your student loans by making an extra monthly student loan payment.
As an alternative to choosing an extra monthly payment amount, the other option is to choose a payoff date. Then, this student loan prepayment calculator will tell you how much your monthly student loan payment would have to be to meet this target date.
Result: If your goal is to pay off your student loans in 5 years (rather than 10 years), you would need to pay $421 extra per month (for a total of $1,028), and you would save $12,132 in interest.
2. Lump-Sum Student Loan Payment
Now, let’s say scrapping together an extra $100 is not feasible, or you prefer to invest or save that money.
Here’s an alternative: make a one-time, lump-sum student loan payment.
The next time you receive your bonus, tax refund, cash gift or any other source of extra funds, consider splurging on paying off your student loans early with a lump-sum payment.
Example: Let’s assume you have $50,000 of student loan debt, an 8% average interest rate, and a $555 per month student loan payment. If you make regular student loan payments over 10 years, you would pay $72,744 and repay your student loans in November 2028.
Here is the time and money you can save with various lump sum payment amounts:
$500 Lump Sum Payment: You would save $515 and pay off your student loans one month earlier.
$1,000 Lump Sum Payment: You would save $1,019 and pay off your student loans three months earlier.
$5,000 Lump Sum Payment: You would save $4,675 and pay off your student loans 16 months earlier.
$10,000 Lump Sum Payment: You would save $8,423 and pay off your student loans 30 months earlier.
If you want to make a one-time, lump sum payment on your student loans, then use this Lump Sum Extra Payment Calculator.
You may have higher or lower student loan debt, but if you take advantage of these student loan hacks, you’ll be on the path to pay off student loans faster and one step closer to financial freedom.