Can You Prepay a Federal Direct Student Loan?

Students with a federal direct student loan, often raise the question: "Can I prepay my loans without penalty?" The short answer is, yes, you can prepay on federal direct student loans. Below are some details on prepaying your federal direct loans.

No Penalties

Unlike some other loans, especially those from private lenders, a federal direct student loan does not incur penalties for prepayment. Once you are ready to start paying off your loan, you may do so as quickly as you like without having to worry about extra charges.

Subsidized Loans

Subsidized direct student loans do not accrue any interest charges. This, plus the fact that there are no penalties for prepayment, means that if you pay off your loan early, you will only pay back exactly what you borrowed.

Unsubsidized Loans

Unsubsidized loans do accrue interest charges. However, by paying off your unsubsidized loan early, either as a lump sum or by paying extra each month, you will end up paying less interest.

How to Prepay

Normally, the Department of Education will send you your first bill after you graduate, but you can choose to begin paying before your academic career is over. Visit your school's financial aid office for information on how to get a bill from the Department of Education in order to begin paying off your loan early. Otherwise, the Department of Education will automatically send you your loan information and begin billing you after you graduate, leave school or move to less than half-time status. Either way, once you start receiving bills, you can then start paying back your loan, either all at once or in installments.

Large Sums or Monthly Over-payments


Some students are able to pay off their loans in one large payment or in a few somewhat smaller installments. Most students who want to prepay, however, find it more practical to simply pay more than the minimum amount due each month. This pays the loan off a little more quickly and reduces any interest rates that may be incurred over time.

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