How to Make Extra Payments on Your Student Loans

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Zina Kumok

By Zina Kumok

January 9, 2019

Borrower who have extra money often want to repay their student loans more quickly, to save on interest and to get started sooner on pursuing their dreams. Instead of just paying the minimum on their student loans, they want to pay extra to expedite the repayment process.

Making extra payments sounds simple, right? Just add in the extra amount when you pay your bill and send it off to the loan provider.

But, making extra payments is actually more complicated than that. If you don’t do it right, you could end up not getting the credit the way you want.

Learn how to get the loan servicer to correctly apply extra payments on your student loans.

Why Making Extra Payments is Difficult

The biggest problem with making extra payments on your student loans is that some lenders will automatically count the extra payment as an early payment of the next month’s installment.

Either way, the extra payment will be applied to the loan balance, reducing the amount owed. But, if the lender advances the due date of the next installment, they could skip the next installment, especially if the borrower signed up for automatic payment.

For example, federal regulations require federal student loan servicers to count the payment as an early payment, unless the borrower specifies otherwise.

When borrowers make extra payments, they want these payments to be in addition to the regular payments, not instead of them.

To make sure your extra payments count as extra payments instead of early payments, you have to provide the lender with instructions on how to handle the extra payment. You can’t rely on them to read your mind and know what you mean.

Ask the Lender How to Provide Instructions with Extra Payments

Let’s say you have a $300 minimum payment and can afford to pay an extra $100 a month as well. When you schedule your $400 payment, the lender might then count the surplus $100 toward the next month’s bill. If you make a $400 payment in January, the loan provider might count the $100 surplus toward February’s bill.

To avoid having your extra payment counted incorrectly, ask your loan provider what you need to do. Depending on the lender, you might have to call to ensure the money will be applied correctly. If you pay your loans via check, you can write a note in the memo line or include a letter with instructions. Each lender will have their own system on how to handle this situation.

If you can afford to pay extra every month, you probably want to automate the process so you’re not spending 30 minutes on hold every time your loans are due. Ask your lender if there’s a way to make automatic extra payments that will count as extra payments instead of early payments.

How to Make Extra Payments

There are a few key steps you should take to ensure that your extra payments are credited properly.

  1. Make your regular monthly payment by the due date, to avoid late fees.
  2. Make the extra payment the same day as your regular monthly payment, or the day after. This will ensure that your regular payment pays off the accrued but unpaid interest, so the extra payment is applied entirely to the principal balance of the loan. Either way, the loan balance will be reduced by the same amount.
  3. Specify that the extra payment is an extra payment, not an early payment of the next installment.
  4. Specify the loan ID number of the loan to which the extra payment should be applied. Usually this will be the loan with the highest interest rate. If you don’t tell the lender which loan should receive the extra payment, the extra payment might be applied to all the loans, or the loan with the earliest due date, or the loan with the lowest interest rate, or the loan with the largest loan balance, or the loan with the lowest loan balance, or completely randomly.
  5. After you make the extra payment, log on to confirm that your loan balance has been reduced as you expected.

Making extra payments on your student loans correctly can be a hassle, but it’s worth the effort. Paying down your loans faster can save you thousands of dollars on interest. Plus, the sooner you become debt free, the sooner you can devote those extra funds toward other goals, like starting a business, buying a house or saving for retirement.

A good place to start:

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