Fed Financial

What happens if I decide to repay my Federal Direct Student Loan early?

Public Comments

1. If you pay all of it, then you don't have to pay interest, if you only some of it, then you pay less interest
2. Yeah, you'll save yourself the interest on it. Fed direct loans also don't have a prepayment penalty, I don't think, though you should look into that. Consider, however, what your interest rate is.....I have two sets of loans, one with a set rate of 6.65% and one with a rate of 2.85%. I'd pay off the 6.65% if i had the funds, but even if I won the lottery tomorrow I wouldn't pay off the ones at 2.85% because you can make a lot more by investing it. A lot of online banks will give you a 4-5% return on your deposits, so it makes more sense to take the money you'd use to pay off the loan and just deposit it (or even buy low-risk bonds, etc., if they have a higher return than your interest rate) because that will be more beneficial for you in the long run.
3. You will save some interest. Which is nice. But the interest rates on these loans are modest, and if you have credit card debt, pay it off first: credit card interest rates are NOT modest.
4. it depends, is your direct loan subsidized, unsubsidized or a combination? on sub loans, you are not liable for interest payments for your loans while you're in school or for six months til you are no longer enrolled at least half time. this would mean that any payments you make will go directly to your principal which means that your overall payments would drop once repayment starts since your interest charges would be lower due to the smaller principal. if your loan is unsubdized, then it is accruing interest while you are in school any payments received while your loan is in deferment would be first applied to interest charges and then to principal. as stated earlier, there is no penalty for prepayment.
5. Then it's paid off early and you've saved yourself some interest. There is no penalty for prepayment of your student loan.