They aren't advertising it, but as the title says you can pay down student loans with a credit card. For me, this means my 8% interest is getting cut down due to 2% cash back. I did a test payment and there was no fee. Thought y'all would like to know.
Listen up, y'all. Got one weird trick to share regarding student loans that:
- Will save you a ton on interest.
- Passively aggressively annoy both your bank and student loan lender literally every day
- Help you pay off your student loan WAY, WAY early
- Doesn't involve you paying a dime more.
- Is perfectly legal and above-board.
- Once you set it up, as long as you have a semi-stable source of income... it takes very little effort to maintain.
Content warning - involves some math... but bear with me because the result is awesome (and actually a little hilarious). First off... let's set the premises:
- Most student loan lenders amortize student loans daily. You make a payment, the lender applies your payment to the principal + interest when you pay. You can pay early and reduce your loan amount and thus total interest paid.
- Most banks (at least the one I have) have a free "bill pay" service. You can schedule a payment and your bank will send a check to the payee automatically.
Still with me? Good. Here's what you do:
- Take your monthly student loan payment and divide by number of days in a month (or weekdays). (So, if your loan is $200/month - dividing by 30 gives you $6.67 / day.) Just make sure the total amount per-month is AT LEAST your required payment amount.
- Set up a "Weekly" payment with your bank to your student loan borrower (So, $6.67 to your student loan borrower every Monday. Repeats until canceled.)
- Repeat this step for each day of the week You're still paying the same amount per-month... you're just spreading it out daily instead of one or two larger payments.
- When the student loan lender receives the payment check, they'll immediately apply it to the loan. This reduces the principal immediately, albeit just a little... which compounds daily... and ultimately means that's less interest being charged over time.
Boom - your bank literally mails a check to your lender every day on your behalf and your student loan lender has to process a check from you every day . Your lender gets WAY less interest than they normally would from you - and you pay off your loan years earlier than usual. And you don't have to pay a dime more for the same result. You also get to be known as "that guy who sends us a check every day" whenever you have to call up the lender. Become a legend. Yes, I did this, yes it worked, and I'm sharing it with you beautiful folks to enjoy too.
...yes, and they're also giving you a "discount" too for the privilege. :D
Although this is extremely funny, plugging the numbers in for a $50,000 loan at 4% over 10 years shows that this only saves you $250. Still, that's $250 you have and the lender doesn't, and you made them cash a check every day.
EDIT:
Whoops, forgot you had to pay the same as if you made monthly payments. In that case it saves you $315 and 20 days. You save more, obviously, if you pay more than the minimum.
EDIT EDIT:
You'd want to pay 1/28th the monthly minimum every day to avoid having to send an extra check in February. At that schedule, you'll save $1193 and 305 days. That's pretty significant, and that's at 4% interest. A lot of student loans are higher than that.
Key difference though is that student loan interest compounds daily, not monthly like other loans. And lender will apply prepayment when it's recieved, not hold it in escrow until a complete payment is recieved. (This same trick doesn't work for a mortgage, that amoritizes monthly).
Lemme look up my old spreadsheets and I can give my own loan as an example and show my math.
But maybe it's different now or depends on the lender. My student loan was during the Bush era when private student loan lenders were a thing... Loan was serviced by a company called Great Lakes and it was a variable rate loan tied to LIBOR index. During Obama they changed it back to federal loans only, and I'm not sure if that would nullify this. Think it's still relevant though but I could be wrong.
Those were the assumptions I used in the calculator, but I had forgotten that you still had to meet the minimum monthly payment, so you're paying at an advanced schedule. If you're paying 1/28th each day so you don't have to send an extra check in February that puts you at an even more advanced schedule.
This. You could load up a credit card and whoops! Bankruptcy!
I've had private student loans with interest at like 12% (though fortunately not anymore).
how'd you find this out and is there a way to check other lenders?
The option came up in the iPhone app and I tried it, once I confirmed no fee I did a larger amount. They didn't advertise it and I could not find the policy in Google, but I definitely wanted to share.
