There are a few simple but powerful techniques you can use to pay off student loans faster and save a significant amount of interest. One of the best is paying student loans biweekly.
The easiest way to do this is to divide your monthly payment in half and pay that amount every two weeks. For example, if your monthly payment is $500, make biweekly payments of $250.
The biweekly payment method: How it works
The standard payoff schedule for a loan is via monthly payments. Interest on the loan is based upon a 360-day year, and the daily interest is added to the principal each day during the month.
Even though months are divided into four weeks, there are 52 weeks in a year, not 48. This means that if you made biweekly instead of monthly payments, you'd be effectively making one extra payment each year.
This will have a powerful impact on your payoff schedule. Your loan will be paid off sooner and you'll pay less interest. For example, if you apply biweekly payments to a 10-year loan (the traditional repayment schedule), your loan will be paid off in about nine years instead of 10. And the longer your original repayment schedule, the more years you'll remove from your original schedule.
Guidelines for paying student loans biweekly
There's just one problem with biweekly payments: Lenders are not set up to accommodate a biweekly payment schedule. Instead, they work on a monthly payment schedule. And even if you make these payments, the lender will not likely adjust the interest to accommodate a biweekly payment. Instead, the interest will be calculated based on the principal balance at the beginning of the monthly cycle.
Hence, making biweekly payments does not automatically result in a reduction of the interest during that month; instead, it has the effect of making one extra monthly payment over a year, which will ultimately reduce the payback period of the loan, as well as the total interest paid.
Here's how to make it work for you.
Check with your lender
See if they can accommodate biweekly payments via autopay. Lenders are usually not structured to accommodate automatic biweekly payments, but this could change in the future if biweekly payment arrangements become more frequent. What is more likely is that you will need to do this manually and set a reminder to make half-payments every two weeks.
From the lender’s perspective, you're simply making partial payments more often, and they'll generally accept partial payments. The loan will still accrue daily interest based upon the loan balance at the beginning of the monthly payment cycle, regardless of when payments are made during the month.
Note: Some student loan servicers offer a small discount of 0.25% for setting up monthly auto-payments; so if you decide to make manual biweekly payments, you may lose this benefit.
Check the due date of your monthly payments
Ensure that both biweekly payments arrive before the monthly due date of each loan. Otherwise, you could be penalized for failing to make minimum payments. One simple way to do this is to begin your biweekly payments at the beginning of the next payment cycle. That way, you can be sure that your payments will fall within the timeframe.
Allocate your payments to the loan balance
Make sure that your payments are being allocated to pay off the principal (the loan balance), and not to future payments.
Note: You cannot instruct the lender to allocate funds to pay the interest; however, you can instruct that your payments are treated as current payments against the principal.
Synchronize biweekly payments with your paycheck
Many employers pay their employees on a biweekly basis, so if your lender will accommodate this, then time your payments to coincide with your paycheck.
That way, you'll ensure that the money is in your bank account when your biweekly payment is deducted. Also, bear in mind that there will be two months during the year in which you will receive three paychecks. Hence there will also be three loan payments in those months.
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If you have more than one loan
Set up biweekly payments for each of your loans if you're looking into paying off your debt faster. If this is not feasible, then you might consider paying off the one with the highest interest rate first.
Consider refinancing
As long as the money from the loan was used for qualified education purposes and you have a low enough income, up to $2,500 of interest paid on refinanced loans is eligible for a tax deduction.
However, if you refinance more than the original value of your student loans, you could lose your tax deduction for the entire amount of the interest.
Also, bear in mind that if you refinance with a private lender, you could lose most of the protections offered by federal student loans, such as Public Service Loan Forgiveness, death and disability discharge, and forbearance.
Examples of biweekly student loan payments
Below are examples of how this might work (Note: The examples used in this article are based upon a 360-day year, with interest accruing daily, and rounded to the nearest dollar).
Loan principal: $50,000
Loan interest: 5.7%
Standard monthly | Biweekly | |
---|---|---|
Repayment period | 10 years | 9 years |
Payment amount | $547.60 | $273.80 |
Interest paid | $15,712 | $14,159 |
Time saved using biweekly payments: 1 year
Interest saved over repayment period: $1,553
In this case, the interest saved over the life of the loan is roughly equivalent to three monthly payments.
Here is what the same loan would look like for a 15-year repayment plan:
Standard monthly | Biweekly | |
---|---|---|
Repayment period | 15 years | 13.3 years |
Payment amount | $413.87 | $206.93 |
Interest paid | $24,496 | $21,682 |
Time saved using biweekly payments: 1.7 years
Interest saved over repayment period: $2,814
In this case, the interest saved over the loan term is equivalent to nearly seven monthly payments.
Let’s see what this same loan would look like for a 20-year repayment plan:
Standard monthly | Biweekly | |
---|---|---|
Repayment period | 20 years | 17.4 years |
Payment amount | $349.62 | $174.81 |
Interest paid | $33,908 | $29,358 |
Time saved using biweekly payments: 2.6 years
Interest saved over repayment period: $4,549
Bear in mind that the longer your loan period, the more interest you will pay over the life of the loan, regardless of whether you make biweekly payments. What you are doing is shortening the life of the loan and saving interest over the standard repayment schedule. That way, you can save money and be done with student loan repayment faster.
Consolidating loans and using biweekly payments
It may also make sense to consolidate or refinance your loans. The traditional repayment schedule for student loans is 10 years. This is the standard repayment plan for loans from the William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program. For consolidation loans, the repayment period can be up to 30 years.
Let’s say that Dorothy attended college, then graduate school, and finally medical school. During this time, she took out several loans as follows (standard 10-year repayment schedule):
Principal | Interest | Monthly Payment | |
---|---|---|---|
Loan 1 | $35,000 | 6.80% | $402.78 |
Loan 2 | $65,000 | 5.41% | $702.53 |
Loan 3 | $100,000 | 6.21% | $1,120.78 |
Total | $200,000 | $2,226.09 |
For a recent graduate from medical school, a monthly payment of more than $2,200 is quite a burden. So, she decides to consolidate the loans and stretch out the payments. The illustration below shows 15- and 20-year repayment schedules at 5.5% interest, and the monthly payments. We’ll keep the interest rate the same to isolate the biweekly payment effect.
Loan (years) | Principal | Interest | Monthly payment |
---|---|---|---|
15 | $200,000 | 5.50% | $1,634.17 |
20 | $200,000 | 5.50% | $1,375.77 |
Either scenario will lower Dorothy’s monthly payment by a significant amount (but remember that she will pay more interest over the life of the loan). Now, if she applies for biweekly payments, the results are shown below.
The first example shows the impact of biweekly payments on a 15-year refinance loan at 5.5% interest (All amounts are estimates; actual results will vary):
Standard monthly | Biweekly | |
---|---|---|
Repayment period | 15 years | 13.4 years |
Payment amount | $1,634.17 | $817.08 |
Interest paid | $94,150 | $83,518 |
Time saved using biweekly payments: 1.6 years
Interest saved over repayment period: $10,632
The next example shows the impact of applying biweekly payments to a 20-year refinance loan:
Standard monthly | Biweekly | |
---|---|---|
Repayment period | 20 years | 17.4 years |
Payment amount | $1,375.77 | $687.89 |
Interest paid | $130,186 | $113,107 |
Time saved using biweekly payments: 2.6 years
Interest saved over repayment period: $17,079
As you can see, stretching out her loans over a longer period decreased her monthly payments, but resulted in an increase in the total interest paid. However, by applying a biweekly payment schedule, she can save significant amounts of interest as well as decrease the payoff time for her loans.
A realistic application of biweekly student loan payments: 7-year fixed vs. 15-year fixed
There are various ways to make use of this biweekly payments technique. For example, let’s consider a scenario in which the former student has $300,000 in total student debt. If the loan is at 4% and amortized over a seven-year period, this is the result:
Standard monthly | |
---|---|
Repayment period | 7 years |
Monthly payment amount | $4,101 |
Interest paid | $44,454 |
What if the student takes out a 15-year loan at 5.5% for the same amount, but makes biweekly payments of $2,050 (half of the original $4,100 monthly payment per the seven-year loan)? Here are the results:
Biweekly | |
---|---|
Repayment period | 5.2 years |
Biweekly payment amount | $2,050 |
Interest paid | $40,677 |
Time saved using biweekly payments: 1.8 years
Interest saved over repayment period: $3,777
In this case, the student has stretched out the loan repayment period to 15 years, which requires a monthly payment of only $2,451. This decreases the monthly burden and gives the borrower some leeway in his or her monthly budget.
However, if he or she is able to make biweekly payments of $2,050 toward the loan, then it could be paid off in only 5.2 years, and the borrower would save more than $3,700 in interest versus taking out a seven-year loan at 4% and making monthly payments. These savings exist despite the higher interest rate.
When using a biweekly payment strategy isn't a good idea
Always bear in mind that the longer you take to pay off a loan, the more interest you will pay. This is as true for a biweekly payment plan as for a monthly payment plan. Hence, you should always make your main focus paying off your loans as early as possible.
If you are fortunate enough to get an annual bonus at your job, you might consider allocating a portion of it toward paying off your loan. The interest is always based upon the remaining principal balance, hence the lower the principal, the lower the interest charged.
Biweekly payments help from a psychological perspective. They are more complicated and not as easy to set up automatically. Therefore, many borrowers will find choosing a shorter repayment term preferable. You can always pay more than you owe to shorten your repayment period.
You also need to be careful that if you decide to use biweekly payments, you do not lose the autopay discount, which is frequently 0.25%.
If your budget requires setting up biweekly loan payments, don't refinance
If your budget requires you to line up student loan payments with payday, you need to cut your expenses. Setting up biweekly payments can be a fun strategy and trick to get out of student loan debt faster.
However, you need to make sure that refinancing is the right approach in the first place. You also need a plan, not just a payment strategy. If you need assistance, we’re here to help with custom student loan plans.
Ever consider making biweekly student loan payments? What’s your opinion of this strategy and would you consider using it?
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Comments
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This is pretty good, sound, advice but since we already get at least 3 pay checks in a month like twice a year I’d say devote those paychecks along with the SnowBall method and you’re Tax Return and Nail that DEBT out of EXISTENCE!!! I did this a year ago and knocked out $5K in DEBT in like 12months (paid it off last February). StilL got another $7K (2 different forms of DEBT) to go but it should be done in the next 5-6 months. Then I can focus just about all my income on my biggest DEBT I need paid off and split my payments into bi-weekly of $300 and literally double down on it every month!
Debt snowball is fine, as are other methods. But we recommend the refinancing ladder strategy for student loans because it saves you more in interest: https://www.studentloanplanner.com/student-loan-refinancing-ladder/
I paidnanone time cash pay off why are am I being charged?)
I’m currently using the biweekly method on both my student loan and my car payment, and have been for several years. When I originally started, I had two student loan payments, one that was due to be finished last year (2019) and my large consolidated loan, and a smaller car payment.
When I realized that I could pay off the second smaller loan that much quicker (I was only suppose to pay 50 a month) if I paid it biweekly, I started doing that. And then rounded my other student loan and car payment up to the next 100 dollars, and split that into biweekly payments. When I paid off the smaller loan, I put that whole amount into the larger student loan, again rounding to the next 100 dollars.
When I paid off my car, the plan was to put that money towards my student loan. However I had to purchase a new car due a wreck, so car payment money went back to car payments. But I started with biweekly payments, so I’ve never been behind, I’m actually a few months ahead, and if money gets a little tight because of unexpected financial trouble — I’ve got a $300 buffer, at least. (One month of biweekly payments on my car.)
And once that is paid off, that $300, will become a biweekly payment on my student loan. Doubling my current payment, so that I might have it paid off before my kid hits high school, instead of when he graduates.
Stundent loans are robery from the government.It makes no sense for loan to out love you interest.The worst I have ever done in my entire life.
Why am I being penalized for not paying my student loans when I’m still in school and I want be completed until Dec.2021. I believe that my 1st payment isn’t due until 6 mo. after. Therefore I can’t be considered delinquent until then.
Will this payment plan also work for mortgages? I would like to make biweekly mortgage plan like that and save on interest over time.
Hey there! Here is a blog that may help: https://www.studentloanplanner.com/buy-house-student-loan-debt/. For all things mortgage-related, check these additional blogs: https://www.studentloanplanner.com/?s=mortgage. If you have further questions, reach out at help@studentloanplanner.com. Thanks!