Many people don’t realize you can pay extra on your student loans above and beyond your normal monthly payment. Even fewer realize what a significant different it can make.

Let’s look at an example.

So a borrower has loan debt of $25,0000 all at 6.8% (for easiness sake). So the borrowers daily interest (interest rate*balance/365) is $4.66.

We are going to assume the borrower makes a payment every 30 days. The payment amount is approximately $288.00 a month. Now lets see what 3 months of payments does to the daily interest and principal balance

**Original Balance: $25,000 Payment: $288.00 Original Daily Interest $4.66**

Month | Monthly Interest (every 30 days) | Amount Towards Principal | New Balance after payment | New Daily Interest After Payment |

1 | $139.80 | $148.20 | $24,851.80 | $4.63 |

2 | $138.90 | $149.10 | $24,702.70 | $4.60 |

3 | $138.00 | $150.00 | $24,552.70 | $4.57 |

As you can see after making the regular monthly payment for 3 months the borrower will reduce the daily interest by approximately $0.09 a day and the principal balance by $447.30.

Now lets see what happens if you pay $400.00 dollars a month instead of the regular payment of $288.00 (increase of just over $100.00 more a month)

**Original Balance $25,000 Payment Amount $400.00 Original Daily Interest $4.66**

Month | Monthly Interest (every 30 days) | Amount Towards Principal | New Balance after payment | New Daily Interest After Payment |

1 | $139.80 | $260.20 | $24,739.80 | $4.61 |

2 | $138.30 | $261.70 | $24,478.10 | 4.56 |

3 | $136.80 | $263.20 | $24,214.90 | $4.51 |

By adding $112.00 a month to your payment you reduce your principal balance from $24,552.70 to $24, 214.90 and your daily interest from $4.57 at the end of 3 payments to $4.51.00. This $.06 a day will save you $1.80 a month.

What this means is that not only will your principal drop $112.00 dollars a month faster because that is how much more you are paying but it will actually gain the amount of daily interest you save during the time as well. So after 3 months you are paying off an extra almost $114.00 a month and as the balance decreases the greater these savings will become. This will expedite your payoff to approximate 78 months from $120.00 and save you over $3,500 in interest*

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**Note: I rounded up the original payment to the nearest dollar of $288.00. This will scew the numbers and the savings slightly. But of course these are all only approximates.*

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