Many student loans have a standard 10-year repayment plan, where borrowers make a set monthly payment that is applied to interest and principal to pay the loan in full at the end of 10 years. If you are able to make extra payments, though, you may be able cut your repayment period in half and save money along the way.
The following examples are based on average debt from the College Board Trends in Student Aid 2017 report for three types of degrees, and assuming loans with a 10-year repayment term, a 6% interest rate and extra payments beginning with the first payment.
With debt totaling $41,300 to obtain a master’s degree, a borrower who pays an extra $100 each month will save approximately $3,329 on interest payments and repay the debt in seven years and nine months.
A borrower who pays an extra $200 each month on the same $41,300 will save about $5,341 on interest and pay off the loans in six years and four months.
The average total debt to obtain a bachelor’s degree is $28,400. An extra $100 payment each month will save the borrower approximately $2,994 in interest and repay the loan amount in seven years.
Paying an extra $200 a month on the $28,400 debt will save a borrower about $4,530 in interest and pay off the loan amount in five years and five months.
An associate’s degree holder with the average debt of $13,000 making an extra $100 payment per month will save about $2,168 in interest and pay the debt off in five years and three months.
Making an extra $200 payment each month on that $13,000 will save approximately $2,876 in interest and pay off the debt in three years and six months.