Are There Prepayment Penalties For Student Loans?

prepayment penaltiesThe world of loans can feel like a treacherous one at times. There’s a lot to keep track of, and even more to watch out for. As you’ve navigated your own student loans, you may have come across the term “prepayment penalties.” But what does that mean? And, more importantly, how does it affect you?

What are prepayment penalties?

Prepayment penalties are usually imposed when borrowers start paying their payments before the agreed-upon deadline. While prepaying helps you, the borrower, save on accrued interest, it results in a loss for the lender. Lenders impose prepayment penalties to make up for this loss.

The good news is that prepaying student loans does not attract any prepayment penalties. (Thanks to the Higher Education Act of 2008). This goes for federal as well as private student loans. So if you have extra cash on you, you can pay the loan off early and reduce the amount of accrued interest without worrying about any penalty.

Consolidate private and federal loans

Fixed rates from 2.44% - 5.97% APR with auto-debit

Learn More

Is prepaying student loans a good idea?

Not always. Before you rush into prepaying your student loan, here’s something to think about. Student loans have some of the lowest interest rates. You’d be better off putting that extra money towards paying off (if you have them) your credit card debt, mortgage, or car loan, all of which have much higher interest rates.

Even if you don’t have any other debt, it may still make more sense to put the extra money to build an emergency fund or towards retirement savings rather than prepay your student loan.

Also take into consideration loan forgiveness. If you qualify for loan forgiveness you may want to hold off on that prepayment, as it reduces the amount of forgiveness that you qualify for.

Check out the other penalties just like paying off your student loans early.

 

Lender Rates (APR) Eligibility
Earnest company logo.
Variable APR: 1.88% - 5.64%*
Fixed APR: 2.44% - 5.79%*
Undergraduate and Graduate
VISIT EARNEST
Lendkey company logo.
Variable APR: 1.90% - 5.25%*
Fixed APR: 2.49% - 7.75%*
Undergraduate, Graduate, Parent PLUS
VISIT LENDKEY
Credible company logo.
Variable APR: 1.80% - 9.99%*
Fixed APR: 2.15% - 9.99%*
Undergraduate and Graduate
VISIT CREDIBLE
Laurel road company logo.
Variable APR: 1.64% - 5.65%*
Fixed APR: 2.25% - 5.75%*
Undergraduate and Graduate
VISIT LAUREL ROAD
Commonbond company logo.
Variable APR: 1.96% - 7.02%*
Fixed APR: 2.59% - 6.94%*
Undergraduate, Graduate, Parent PLUS
VISIT COMMONBOND
Fixed APR: 2.44% - 5.97%*
Undergraduate, Graduate, Parent PLUS
VISIT ISL Education Lending
Variable APR: 1.87% – 5.33%**
Fixed APR: 2.30% – 5.96%**
Undergraduate, Graduate, Parent PLUS
VISIT Nelnet
Variable APR: 2.94% - 4.84%*
Fixed APR: 2.99% - 4.94%*
Undergraduate and Graduate
VISIT College Ave
Variable APR: 1.86% - 6.01%*
Fixed APR: 2.47% - 5.99%*
Undergraduate and Graduate, Parent PLUS
VISIT ELFi

*APR includes a 0.25% interest rate reduction for enrollment in automatic payments.

**Interest rate reduction of .25% for automatically withdrawn payments from any designated bank account (“auto debit discount”). Auto debit discount applies when full payments (including both principal and interest) are automatically drafted from a bank account. The auto debit discount will continue to apply during periods of approved forbearance or deferment if the auto debit discount was in effect at the time of receiving the forbearance or deferment. Auto debit discount will remain on the account unless (1) the automatic deduction of payments is canceled or (2) there are three consecutive automatic deductions returned for insufficient funds at any time during the term of the loan.

Leave a reply

Your email address will not be published. Required fields are marked *