Increase Monthly Student Loan Payment to Save on Interest | Store student loan

A few weeks ago, the Student Loan Ranger clarified that paying your interest before it’s capitalized saves you money on your student loans. Now let’s take a look at how federal student loan repayments are applied and how understanding how it works can also save you money in the long run.

First, the basics: Federal student loans are heavily regulated, even down to how payments are applied.

Loan holders are required to apply payments first to outstanding charges, such as late fees, then to interest accrued to date, then to principal. This requirement is similar to how other types of consumer debt, including many mortgages, enforce borrower payments. You can never request that additional funds be applied to the principal if you still owe accrued interest on the date the loan holder receives your payment.

The order in which the payments are applied is the reason why it appears at first glance that you are making little progress in paying down your debt. At the start of the loan term, most of your payment will go to interest – assuming you’re on a standard, level repayment plan – and very little will apply to the principal balance.

However, as you approach the second half of the loan term, you will notice that each monthly payment decreases your balance faster and the majority of your payment goes to the principal of the loan. The reason for this? Math.

Remember that interest accrues daily on federal student loans. The common calculation for daily interest is the principal balance multiplied by the interest rate, which is then divided by 365.25 (remember the leap year). This gives you the amount of interest your current outstanding principal is accumulating each day.

This daily interest accumulates in its own accounting line and does not affect your principal balance unless – and until – this interest is capitalized. Consider an example of a loan with a balance of $50,000 and an interest rate of 5% over a standard repayment term of 10 years. Over a one-month period, interest of $6.84 will accrue daily; on day 30, your accrued interest balance will be $205.20.

If you have no late fees to pay and there is no other outstanding interest from a lower payment option, your regular monthly payment of $530.33 on day 30 will pay full interest first run. The remaining $325.13 of the payment will go towards your principal, leaving you with a loan balance of $49,674.87 and no accrued interest. Now, instead of earning $6.84 a day in interest, you’ll only earn $6.80 in interest.

July 2016
$530.33 Payment amount
$321.99 Principal amount
$208.33 Interest amount
$208.33 Total interest paid
$49,678.01 New Main Balance
August 2016
$530.33 Payment amount
$323.34 Principal amount
$206.99 Interest amount
$415.33 Total interest paid
$49,354.67 New Main Balance
September 2016
$530.33 Payment amount
$324.68 Principal amount
$205.64 Interest amount
$620.97 Total interest paid
$49,029.67 New Main Balance
April 2026
$530.33 Payment amount
$523.75 Principal amount
$6.57 Interest amount
$13,632.72 Total interest paid
$1,054.06 New Main Balance
May 2026
$530.33 Payment amount
$525.94 Principal amount
$4.39 Interest amount
$13,637.11 Total interest paid
$528.13 New Main Balance
June 2026
$530.33 Payment amount
$528.13 Principal amount
$2.20 Interest amount
$13,639.31 Total interest paid
$0.00 New Main Balance

Month

Payment amount

Principal amount

Interest amount

Total interest paid

New Main Balance

July 2016 $530.33 $321.99 $208.33 $208.33 $49,678.01
August 2016 $530.33 $323.34 $206.99 $415.33 $49,354.67
September 2016 $530.33 $324.68 $205.64 $620.97 $49,029.67
April 2026 $530.33 $523.75 $6.57 $13,632.72 $1,054.06
May 2026 $530.33 $525.94 $4.39 $13,637.11 $528.13
June 2026 $530.33 $528.13 $2.20 $13,639.31 $0.00

This first table shows your payment history if you only make the standard payment for 10 years – note that there are some differences in the amounts due to rounding. The second table shows your payment history if you increase your monthly payment by $20.

July 2016
$550.33 Payment amount
$341.99 Principal amount
$208.33 Interest amount
$208.33 Total interest paid
$49,658.01 New Main Balance
August 2016
$550.33 Payment amount
$343.42 Principal amount
$206.91 Interest amount
$415.24 Total interest paid
$49,314.59 New Main Balance
September 2016
$550.33 Payment amount
$344.85 Principal amount
$205.48 Interest amount
$620.72 Total interest paid
$48,623.45 New Main Balance
November 2025
$550.33 Payment amount
$544.84 Principal amount
$5.49 Interest amount
$12,959.34 Total interest paid
$772.33 New Main Balance
December 2025
$550.33 Payment amount
$547.11 Principal amount
$3.22 Interest amount
$12,962.56 Total interest paid
$225.22 New Main Balance
January 2026
$226.16 Payment amount
$225.22 Principal amount
$0.94 Interest amount
$12,963.50 Total interest paid
$0.00 New Main Balance

Month

Payment amount

Principal amount

Interest amount

Total interest paid

New Main Balance

July 2016 $550.33 $341.99 $208.33 $208.33 $49,658.01
August 2016 $550.33 $343.42 $206.91 $415.24 $49,314.59
September 2016 $550.33 $344.85 $205.48 $620.72 $48,623.45
November 2025 $550.33 $544.84 $5.49 $12,959.34 $772.33
December 2025 $550.33 $547.11 $3.22 $12,962.56 $225.22
January 2026 $226.16 $225.22 $0.94 $12,963.50 $0.00

By adding just $20 per month to your payment, you’ll save nearly $1,000 in interest over the life of the loan. You will also repay your loan five months earlier. Add $100 per month to your payment and you’ll save almost $4,000 in interest and pay off the loan by July 2024, almost two years earlier.

There are a few additional rules to be aware of if you are going to be making additional payments for your loan. Regulations require that any multiple of the required monthly payment extend the loan maturity date by the appropriate number of months, unless the borrower specifically requests it.

Note that the payment applies equally to principal and interest in either example scenario. This is because you cannot pay interest before it accrues.

If you only make part of an additional payment, as in these examples, the due date will not skip until the total additional amount you paid equals a monthly payment. So, in our example of an additional $100, approximately every six months, the borrower’s payment due date would advance by one month.

Applying for student loan repayment is a subject that can be very confusing for student borrowers. So remember this basic tip to get rid of your debt faster: pay a little more each month – even if it’s just the money you’ve saved from bringing your lunch to work or doing coffee at home – can make your student loans much more manageable.

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