Your student loan interest doesn’t get plunked onto your balance once a month. Instead, it accrues on a daily basis. That means the lower you can shrink your loan balance, the less interest you’ll pay—and the more money you’ll save while you’re working to pay back your loans. If you get into the habit of making a student loan payment every other week, you’ll end up making that payment an extra two times. That adds up to thirteen “monthly” payments in a year, instead of twelve. Paying in this way shaves months off your repayment period too.
Consider a $20,000 loan balance with a 7 percent interest rate. You’re just starting your ten-year repayment term. If you pay biweekly, you’ll pay your loan a little more than a year early and save almost $950 in interest. Just make sure your payments are automated (so you don’t have to remember which weeks require you to pay your loan), and make sure that your total payments submitted for that month add up to at least your minimum monthly payment.
If your only debt is student loan debt, you might feel torn between trying to pay it off as soon as possible and not prioritizing it at all. But there’s an easy trick to help you figure out which part of your finances should take center stage:
A conservative rate of return for an investment portfolio is about 6 percent. If you’re paying 7 or 8 percent interest on your student loans, get them paid off ASAP. But if you’re only paying 2–4 percent interest on your loans, it’s a no-brainer: Focus on investing now so you’re more comfortable down the road.