Can You Pay Off Student Loans in One Lump Sum?

You can use a lump sum of money to pay down or pay off student loans. There are typically no penalties for prepaying federal or private student loans.

You’ll save time and interest if you can pay off your student loans in one lump sum. But before you do so, consider financial goals that may take higher priority — like building up an emergency fund or beefing up retirement savings.

Should you make a lump-sum student loan payment?

Before making a lump-sum student loan payment, evaluate your other financial priorities. Putting that cash toward an emergency fund, retirement savings or high-interest debt, like credit cards, could save you more money overall and lower your chances of increasing your debt down the road.

If you’ve checked those boxes, a lump-sum payment may make sense if you want to prevent interest capitalization or pay off your student loans early.

For example, say you owe $30,000 at 6% interest for 10 years. If you put a $5,000 lump sum toward those loans, you would finish repayment 26 months earlier and save over $3,600 in interest.

Even if you don't have a lump sum, any extra payment helps. In the scenario above, adding $100 to your monthly payments would cut 35 months off your term and save you roughly $3,070 in interest.

Other ways to lower your student loan payments, like refinancing with a private lender at a lower interest rate, can also save you money without you paying more.

» MORE: Best refinance lenders for paying off student loans fast

Cons to paying off student loans early

While paying off a student loan in one lump sum sounds advantageous, there could be potential downsides to consider.

Limits savings. If you’re short on an emergency fund or have long-term financial goals like saving up for a home, applying a lump sum to student loans could slow those savings efforts down. Take stock of your savings goals before making a lump sum payment on your student debt.

High-interest debt builds. If you carry high-interest debt, like credit cards, choosing to put a lump sum toward student loans may end up costing more than if you put that money to higher-interest debt. Use a debt tracker to calculate what you owe and build a strategy for paying it off.

Delays investments. The sooner you start saving for retirement, the more time your investments have to grow and compound. A lump sum used to pay off low-interest student loans could instead fund higher-return retirement savings.

» MORE: Should you pay off student loans or invest?

Student loan lump-sum payment calculator

How to make a lump-sum payment on student loans

Windfalls of cash are unexpected funds you receive from things like tax refunds, a raise at work, extra employment or an inheritance.

If you’re ready to pay off your loan, whether through savings or a cash windfall, follow the steps below:

1. Get a loan payoff quote. Contact your student loan servicer for a loan payoff quote or use your servicer’s online portal to acquire your loan balance. This will detail the exact amount you’ll need to pay off your student loans in one lump sum as of the payoff date.

2. Request to pay off balance. Tell your servicer to apply the lump sum to your loan’s balance. If you have more than one loan, you may want to provide additional instructions based on which loan you want to pay off first. You can typically do this online or by mail. Check with your loan servicer for specific instructions.

3. Verify the loan was paid. Your loan servicer should send a letter of confirmation that your loan balance was paid in full. Depending on the lender, this could take 30 to 45 days to receive.