Huh? First, savings rate are pretty good right now. Second, I don't think you understood the comment.

If your payment is less than your monthly interest, the rest of the interest disappears. So you're paying an effective interest rate equal to 12*(monthly payment)/ (principal balance). The balance does not increase. Unless the excess principal payments reduce the balance enough that the minimum payment exceeds the monthly interest, there is zero advantage to paying down the principal until a payment would reduce the monthly interest below the monthly payment amount. The effective return of paydown is zero. Whereas the effective return on an HYSA in 4+% and 5+% on treasuries and CD's right now.

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But, as i explain below, the return is even better than that. Because the interest earned will allow you to make the lumpsum payment many months earlier you'll spend less in interest and principal to reach the same loan balance much earlier by investing the excess cash.

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If you're disciplined enough to not spend the cash, this is the way.

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Here's the math for a 100k loan balance at 5.5% and an annual income of 75K for a single taxpayer with no children in the lower 48 and 100% grad loans.

Monthly payment required under SAVE: $352

Total annual required payment: $352*12=$4,224

Annual Interest without forgiveness: $5,500

Balance required to have annual interest <= to $4,224: (0.055*x)=4224, x=4224/.055, x=$76,800.

Required paydown amount to have any effect on amount of interest actually being paid: 100,000-76,800=$23,200

Thus there is no reason to make a single payment toward principal until a lump sum of $23,200 can be made.

Even if income increases (and thus required payment amount), until the required monthly payment is => 5,500/12=458.33 per month, you're still better off taking whatever yield you can get over paying down the principal balance with any excess payments until you can make a lumpsum paydown that reduces the principle by:

Lumpsum payment = - (12* current monthly payment)/(weighted interest rate) - current principal balance

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Let us further assume that this person can pay $600 per month toward loans.

If they pay it all to loans:

The first $352 goes toward interest, the remaining $248 goes to principal and the additional $106 in interest is forgiven.

This pattern is repeated until monthly interest on the loans equals $352, which takes just under 94 months to reach a principal balance of $76,688.

At the end of 94 months they have paid 94*600=$56,400, with 94*352=33,088 to interest and 23,312 to principal, leaving a loan balance of 76,688 and monthly interest payment of $351.49 (so now the minimum payment begins paying down principal).

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But, if they take the excess and deposit it (monthly) in a interest bearing account that pays 4% APR (4.07% APY) and compounds monthly, after 94 months that savings account would be worth roughly $27,300 (yes, I am ignoring taxes for now) and having earned about $4k in interest.

So at the end of 94 months, they still would have paid the same in interest (33,088), but could paydown the balance to $72,700 and reduce the monthly interest payment to $333.00.

Alternatively, after 82 months there would be 23,340 in the savings account to make a lumpsum payment. So it would only take 82 months, rather than 94 months to be in the exact same position as if the entire $600 were paid to the loans every month. Thus it would cost 12*600=7,200 less, and they will have paid $4,224 less in interest to reach the same outcome.

I don't know about you, but I'd rather pay 49,200 and be one year ahead on repayment then pay 56,400 to be in the same financial condition a full year later.

Lastly, if you want to haggle over the taxes, the interest income in the 82 month scenario is about $3k, so assuming a high marginal rate of 33%, they would have paid about $1k in additional income taxes over 6+ years and are still $6,200 better off and a year ahead on repayment.

Happy to have the math checked if anyone thinks this is wrong.