Paying extra on federal student loans: what happens to the money

No penalty

You can pay off all or part of a federal student loan at any time without a penalty (34 CFR 685.211; StudentAid.gov).

Prepayment and your due date

Anything above the amount due is a prepayment. If it is at least a full monthly payment, the servicer applies it and moves your next due date forward, unless you ask it not to. If you want the extra money to reduce the balance and still owe next month’s bill as normal, tell your servicer not to advance the due date. Smaller extra amounts are applied without changing the due date.

On RAP

RAP’s two benefits depend on paying the bill on time each month:

• Extra money goes to interest first, so it can reduce or cancel that month’s interest waiver.
• If your payment already cuts principal by $50 or more, there is no principal match that month.
• If the due date advances, months without a bill get no waiver and no match.

StudentAid.gov says it will publish more on how the waiver and match work when you pay more than the amount due.

On PSLF

PSLF forgives the balance after 120 qualifying monthly payments while you work for a qualifying employer. Paying extra doesn’t shorten that, and lowers the balance that would be forgiven.

See the numbers in the payoff calculator.

Not financial or legal advice. This page explains the published rules. It does not tell you which plan to choose. Your loan servicer and StudentAid.gov have the final word on your account.

Next guide: Refinancing federal student loans: what changes