Strategies for Student Loan Repayment
For millions of graduates, student loans are the first major financial hurdle they face. Understanding how interest accrues is the first step toward becoming debt-free. Student loans typically accrue interest daily, which means the balance grows every single day that payment isn't made.
Federal vs. Private Loans
It is crucial to distinguish between federal and private loans. Federal loans often come with protections like Income-Driven Repayment (IDR) plans, deferment options, and potential forgiveness programs. Private loans, however, operate much like auto loans or mortgages and rarely offer these flexibilities.
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The Power of Extra Payments
Because interest is calculated on the outstanding principal, making extra payments early in the loan term saves you the most money. Even adding $50 a month to your payment goes 100% toward the principal (once accrued interest is covered), which lowers the amount of interest charged the very next day. Use this calculator to see how different terms affect your total cost.