Student Loan repayment

Playing with my financial calculator (yes I do that for fun sometimes) I ran some calculations on my student loan and came up with some interesting results. My current loan of $40,398 will take 218 months to pay off with no changes. However, I sent in $5,000 yesterday bringing my loan balance down to $35,398 which will be paid off in 186 months if I keep my payments the same.

Then I ran calculations based on paying more each month. If I hit my goal of paying an additional $1,370 or $114 a month it would be paid off in only 117 months – assuming I maintain the higher payments. An extra $200 a month would bring the payoff period down to 91 months. But even small amounts can really cut down on the length of the loan. An extra $80 a month would save me 55 months, an extra $30 would save 25 months and even an extra $100 a year would save 6 months. Taken to the extreme, a mere $2 extra a month, which I would never notice in my budget, would take off 1 month.

Here is a chart of various payment options

Payment Length of Loan in Months Length Reduction in Months

$219 186 0
$222 185 1
$227 180 6
$250 161 25
$269 148 38
$300 131 55
$319 123 63
$333 117 69
$419 91 95

(sorry about the poor chart)

Even paying extra each month I’m looking at 10 years or more of student loan payments, unless I really ramp up my prepayments. Ouch. At least it’s at the rock bottom rate of 1.9%, which is why I’m not really in a huge rush to pay it off. There is a lot to be said for the option value of having cash on hand to either make a timely investment or to use in case of an emergency. So what am I going to do? I’m going to start by paying an extra $50 a month and contribute additional amounts based on what I earn from outside sources.