Student Loan Prepayment & Payoff Calculator

How to use this student loan prepayment calculator

Paying off loans early can relieve anxiety and ease the burden of a substantial student loan payment each month, and can help borrowers save on interest costs.

This student loan payoff calculator helps you determine how much you can save now and in the long run by using a prepayment strategy. It allows you to see how long your repayment term will last based on how much you are contributing each month.

Here’s how to use it:

1. Input your information. Enter your current student loan balance, the annual interest rate on your loan, and the loan term, as well as make selections on whether to pay off student loans faster by contributing extra each month or picking a loan payoff date.
2. See your new repayment terms. The calculator will then generate your current and new repayment term in years, including the reduction in years based on the strategy selected.
3. View interest costs. It also calculates your interest payments based on the current and new strategy, and the savings from the new approach.
4. Understand total cost of borrowing. Finally, the calculator helps you see the total cost of your repayment strategy and the savings you get by making additional payments.

How to pay off your student loans faster

Prepayment on your student loans can have a dramatic impact on your financial life. It may help free up monthly cash flow once your loans are paid off, but while in repayment, you can reduce the amount of interest you pay on the total loan balance over time.

Here are several strategies you can use to help pay off your student loans faster.

Pay more than the minimum

One of the best ways to pay off student loan balances early is to pay more than the minimum required. Each student loan lender calculates your monthly loan payment based on the loan amount, your interest rate, and the term of repayment. This generates a minimum required payment due each month. 

Paying more than the minimum helps expedite your loan repayment term, ultimately allowing you to pay off the balance faster by reducing your balance at a faster rate.

Make extra payments when you have the opportunity 

You may also work toward paying off your student loans faster by making extra lump sum payments when the opportunity presents itself. If you receive a tax refund that you aren’t planning to use for another financial goal, put some or all of it toward your student loan balance.

The same can be done for a bonus from work, a windfall, or an inheritance. Consider your interest rate on the debt and compare that to other debts you owe to see what would be the most cost-effective place to put extra cash.

Be careful with repayment plans

Federal student loans allow most borrowers to access income-driven repayment plans, which help reduce your minimum monthly payment requirement by extending the term and limiting your payment based on discretionary income. There are also extended repayment options that reduce your monthly payment by stretching repayment over a longer amount of time.

While these are beneficial from a cash flow perspective, they do not necessarily help you pay off your loan balances early. This is because the minimum payment due may not cover your full interest payments, and you will likely owe far more than you started with by following this strategy.

Utilize tax credits and deductions

Some borrowers qualify for a student loan interest tax deduction, which reduces taxable income and may increase a tax refund in the year it is taken based on interest paid on federal and private student loans. Other tax credits may help improve your overall tax situation – savings which can then be used to pay down loans faster.

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Student loan interest tax deduction calculator

Use a budgeting app

In addition to the strategies mentioned above, you may also want to invest in a budgeting application or tool. Understanding your cash flow from month to month helps you determine what extra funds, if any, are available to use toward your student loan payoff.

You can use a mobile app to help track your income and spending, or you can use a pen and paper or another online method to do it manually. Taking this small step toward understanding your budget can have a positive impact on your ability to pay off student loan balances faster.

Should you pay off your student loans early?

Overall, paying off student debt earlier than planned or required is a sound financial move. Not only does it free up your monthly income for other uses once balances are paid off, but it also allows you to save on interest accrual while you are in repayment.

Any one of the strategies mentioned above, alongside the use of this student loan calculator, can help you work toward your early student loan repayment goal.

View additional Student Loan Calculators here at LendEDU.