What are the penalties for early student loan payment?

There are no prepayment penalties on federal student loans or private student loans. You can make extra payments on your student loans or pay them off in-full without paying a fee or other penalty.

To make a payment, contact the loan’s servicer. For federal student loans, you can find your loan servicer using the student access portal to the National Student Loan Data System (NSLDS). To log in to NSLDS, you’ll need your FSA ID.

National Student Loan Data System (NSLDS) Homepage

For private student loans, you can find your servicer on your credit report. You can get a free copy of your report at AnnualCreditReport.com.

When Early Repayment = Interest-Free Loan

Direct Subsidized Loans and Perkins Loans do not accrue any interest while you are enrolled in school at least half-time and during the grace period. If you pay off the balance before the grace period ends, you’ll repay just the amount borrowed, plus any loan fees. That would make the loan interest-free!

How Paying Extra Affects Your Loan

Paying extra each month (or making an extra payment per year) will pay off the loan sooner and reduce the total interest that would have added up.

In this example, paying an extra $100 each month saves more than $1,400 in interest and cuts the length of the loan in half:

Cut Loan Term in Half with Extra Payment

How to Make an Extra Payment

When making an extra payment, include a letter telling your servicer to apply the extra payment to the unpaid balance on the loan with the highest interest rate (if there are multiple loans in your account). If you don’t, the servicer might apply the extra payment to the following month’s payment. If you are signed up for auto-debit, this could even cause the servicer to skip the following month’s payment.

The Consumer Finance Protection Bureau (CFPB) has created a template for the letter to your student loan servicer: Download the Word document.