Lets say you get a paycheck every two weeks, as a majority of people do. Now, if you want to save even more on your student loans I was doing some research on the amount of money you can save by making biweekly payments. This would mean you would not pay your loan bill once a month but you could pay every paycheck. For those that this is a feasible option for them, I would highly suggest reading below to see the details.
Most likely your student loan interest is calculated on a daily basis. Take your interest rate and divide it by 365 days. My rate at 7.375% is 0.020%. This is your daily interest rate. On approximately 490k (remember to move the decimal point two places to the left) brings my daily interest rate to about $98 a day. Basically, I’m spending $98 a day before the sunrise rises everyday. When I log into Fedloan servicing I can see the current accumulated interest since the last payment:
My unpaid interest is $1,284.72. this amount increases by $98 daily and the new balance is used for the new daily interest dollar amount calculation. This is the principal of daily compounding interest. Your calculated interest every day is based on the previous days increased balance.
Now lets say you pay half of your student loan payment 15 days before the due date. You are dropping the balance just that small amount so you will save that extra money of compounding interest. Over time this could save you hundreds, thousands, or tens of thousands. You will also finish paying off your loan sooner, sometimes by years. There is a calculator you can use to calculate your savings. In my half a mill student loan situation this is huge. Not to mention this money is all out of pocket money and is all savings on interest. Check out what my projected savings is:
If you want to calculate your savings, this is the calculator I used: Biweekly payment calculator
– Dr. J