Can I pay off my student loan in full at any time? | Consumer Financial Protection Bureau (2024)

FAQs

Can I pay off my student loan in full at any time? | Consumer Financial Protection Bureau? ›

Yes, you can pay your student loan in full at any time. If you are financially able to do so, it may make sense for you to pay off your student loans early to save money on interest. Lenders typically call this “prepayment in full.” Generally, there are no penalties involved in paying off your student loans early.

You can use a lump sum to pay down or pay off student loans. There are no penalties for prepaying federal or private student loans. You'll save time and interest if you can pay off your student loans in one lump sum.

When you pay off a student loan, it's possible that your credit score will go down temporarily. That said, it'll typically recover and may continue to increase over time as you use credit responsibly.

Pay less over the life of the loan: Because your student loan, like most other debt, accrues interest when you carry a balance, it's cheaper if you pay off the loan earlier. It gives the debt less time to accumulate interest, meaning you'll pay less in the long run.

You may prepay your loan at any time without penalty, regardless of repayment plan.

When you pay off your loan in full, it will show up as paid on your credit report. Experian says paying it off “looks good on your credit history, but it may not have a dramatic impact on your credit score.”

The maximum repayment term for borrowers with only undergraduate loans is 20 years and 25 years for any borrowers with graduate school loans. Income-driven repayment plans cap your monthly payments at a certain percentage of your discretionary income.

Paying a little extra each month can reduce the interest you pay and reduce your total cost of your loan over time. Continue to make monthly payments even if you've satisfied future payments, and you'll pay off your loan faster.

If you take out a loan to consolidate debt, you could see a temporary drop because of the hard inquiry for the new loan. Your credit score can take 30 to 60 days to improve after paying off revolving debt. Your score could also drop because of changes to your credit mix and the age of accounts you leave open.

In terms of payment history, information about loan payments and certain loan statuses may remain on your credit for up to 10 years even after the loan account is closed and the loan is paid off completely.

Is it worth it to aggressively pay off student loans? ›

A general rule of thumb is to invest instead of aggressively pay off your student loans if the average return on investment is higher than your student loan interest rates. A conservative but plausible return on investments is 6% per year.

Cons of paying off student loans early

Limits your ability to save now: If you funnel all of your resources into paying off your student loans, you won't have as much room in your budget to save for other financial goals, like an emergency fund or retirement.

Key Points. Interest can make student loans more expensive, while inflation can make that debt harder to manage alongside other bills. Paying off some of your debt during your studies could ease the burden later on and save you money on interest.

However, some lenders may charge a prepayment penalty fee for paying the loan off early. The prepayment penalty might be calculated as a percentage of your loan balance, or as an amount that reflects how much the lender would lose in interest if you repay the balance before the end of the loan term.

Prepayment penalties can be charged in a variety of ways. They may be calculated as a percentage of the remaining loan amount — typically 1 to 2 percent. The penalty could be equal to a certain number of months' interest. Or some lenders may charge a flat fee.

Teachers with loans through Nelnet can pursue teacher loan forgiveness. Teachers may qualify to have a maximum of $17,500 or $5,000 in student loans forgiven, depending on the subject area taught, if specific requirements are met.

What to do if you've already paid down your loan. Any borrower who took advantage of the pause on payments and interest accrual during COVID-19 to pay down their debt can request a refund now. The refunded amount will reappear in your account as a loan balance.

Paying a lump sum off your mortgage will save you money on interest. It will also help you clear your mortgage faster than if you spread your overpayments over a number of years. But this option holds risk. If you needed the money back in an emergency, such as job loss, it could be difficult.