paying off student loans early

Discussion in 'The Watercooler' started by peg2, Jan 25, 2014.

  1. peg2

    peg2 Member

    Hi, I am terrible with anything math related, but I'm sure someone SMART can answer this. My son has a small government student loan(maybe 4000.00 or so) and has just started paying it. He wants to try and pay it off early but asked me how he can do that. I just made a payment for him and last month he paid 100.00 instead of what his usual payment would be. The statement that came now says he only owes a smaller payment this month but he thinks it will always be that way and he can never pay ahead. If he continues to pay 100.00 or so(when his payment is normally 67.00) he thinks the next statement will say he doesn't owe anything for that month. Can he pay ahead or do they not allow that?
    It's confusing for me....thanks for any help you can give. Peg
  2. KTMom91

    KTMom91 Well-Known Member

    He should be able to pay more to get it paid off sooner, but he can check with the lender to make sure it's OK. Don't see why it wouldn't be, though. They should be thrilled to get a payment since so many (myself and Son #2 included) can't afford to make the extremely high minimum payment they're requesting.
  3. svengandhi

    svengandhi Well-Known Member

    Assuming his loan doesn't have a prepayment penalty, he can pay ahead but he MUST specify that's it is to be applied to principal. If you don't do that, the lender will apply the extra payment to the next month's interest and then send a lower payment coupon for the next month. It's better to reduce the principal because that helps reduce the interest in the long run by shortening the loan period. I always round up my mortgage to the next hundred and say it's for principal. Once, the bank didn't record it properly so I had to go back and have them correct it. When I had my home equity, we came into a small inheritance and made a lump sum payment which was supposed to go towards principal. Instead, I got a notice that I didn't owe a payment for x months. When I called the bank, I found out they had applied it to interest. I made them change it.

    There might be a link on the bank site which will allow him to check how his payments apply to the amortization and he can see how the term will decrease. I've had my loan term shortened by about 7 months so far.
  4. Nancy

    Nancy Well-Known Member Staff Member

    Is the loan through FAFSA, U.S. Dept of Education? Our daughter has a loan thorugh them and we are actually paying it off for her so I am very familiar with this. If the loan is through the Dept Of Ed you can sign up online for statements and payments. Her payment is $150 a month and we are paying $300 a month. So every month the statement comes out with nothing owing and the next payment due May 1915. I ignore that and click on the "pay online" link. Then they ask what stamet I am payig and I just click on the next payment e.g. May 1915 and I enter the amount $300 insteda of what they say we owe. Does that make sense?

    Let me know if you have any other questions that I can answer.
  5. FlowerGarden

    FlowerGarden Active Member

    I believe you have to tell them the extra money is to be put to the principal of the loan. Your son is very smart by paying his loan off faster. Good for him!
  6. Nancy

    Nancy Well-Known Member Staff Member

    Not if it's a Dept of Education loan. You just keep paying ahead and it will be paid off early, no penalty. But you have to make sure you pay every month because it will look like you don't owe anything the next month. The interest is a fixed amount every month/day. If you pay it off two years early you do not pay the interest for those two years. This applies to a standard repayment plan. If you have any other type of repayment plan like income based or graduated then the rules are different.