Making Extra Student Loan Payments So You Pay Down That Principal

After a long period of unemployment (and a lifetime of aversion to thinking about money stuff), I have somehow landed a job that pays pretty well and am trying to get myself out of the financial hole I was in for a while.

An important part of this is paying off some of my massive amount of debt, most of which is student loans. For a while now I have been paying interest only on my private loans, which obviously needs to stop. Your Sallie Mae “Helping You Pay Less” article was very helpful in alerting me to the barriers that have been put up between me and reducing my private loan principal. So now I will be sending in extra payments by check specifically requesting that they be applied to the principal. Fingers crossed that this works.

On to my question, finally: I have three private loans with roughly equal balances, two of which have an interest rate of about 5% and one that has an interest rate of about 9%. In accordance with your other extremely helpful article regarding the ‘snowball’ and ‘avalanche’ methods, it seems like the best thing to do would be to try to apply any extra payments towards the principal of the 9% interest rate loan before moving on to the other two lower interest loans. So, is this possible and if so, how do I do this? — J.

Since it sounds like J. has it mostly figured out already, I’m posting this question to gauge how many people have difficulties making extra payments on the principal balances of their student loans every month.

Sallie Mae instructs me that if I’d like to pay more than the monthly minimum payment, all I have to do is enter in more money in the payment field, which I’ve done without ever having a problem:

As for J., it sounds like you are doing everything correctly! I’d definitely make minimum payments on the two student loans with 5% interest and apply extra payments to the student loan with the not inconsequential interest rate of 9% (seriously, that’s like a credit card interest rate!). You should be able to make those payments directly on the site, or send in payments by check requesting that the payment be applied to the principal of the loan with 9% interest (Sallie Mae services three of my student loans—one private loan and two federal loans. Each of the loans has a unique loan name, i.e. Excel-6176, so you should be able to indicate which loan you want the payment to be applied to if you have more than one loan bundled into a single account). If you can’t make the extra payments on the site, I’d definitely call up a customer service rep to get specific instructions. The CFPB has a sample letter you can use to mail to your loan provider with specific instructions, which you can find here.

All the best on getting this paid off, and hope to see you throw some money at your problems in our thread every month!

Photo: Donkey Hotey

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30 Comments / Post A Comment

clo (#4,196)

I started rounding up just a little on my payments this year and I’ve already seen a huge difference in the balance remaining. My minimum is 284, so I just pay 300 a month instead which is barely noticeable to me but totally makes a difference.

CubeRootOfPi (#1,098)

@clo Ooh, this is a good idea (I try to put in extra $ each month, but rounding up would motivate me to put in just a little more). Thanks!

lemonadefish (#3,296)

I auto-pay my Sallie Mae (consolidated) loan, by having Sallie Mae debit my bank account – I wish I could make that payment larger than the minimum, but I’ve never figured out how. Sometimes I remember to go and throw an extra $50 at them, but not very often…

Katze (#5,053)

I have had very mixed success with getting extra payments to principle actually posted to principle (instead of advancing the due date of my next payment). Keep a sharp eye on where and how they apply your payments, especially if you have multiple loans with the same provider.

Also, I found that it has been very helpful to build an Excel spreadsheet so I can run the numbers on which loan should get the higher payments. It may not be the highest interest loan. In our case, for example, the principle amount of our 3rd or 4th highest loan is so large that we are actually saving more in interest by making the extra payments in that loan. Once I built the spreadsheet, it takes me maybe 15 minutes to run the numbers, discuss with my husband (because we treat our collective loans as one big mess to solve together, so that’s how we roll), and decide what changes to make. We re-evaluate whenever something happens – for example, when one of us gets a bonus at work, or when we paid off one of our cars and decided to put that amount toward student loans.

CL (#3,590)

@Katze That is not mathematically possible. Assuming you are contributing the same amount each month under either scenario, you will always save money getting rid of the highest interest rate debt first.

tuntastic (#2,769)

@CL Uh, no. Not in terms of actual dollars paid (yes in terms of interest as a proportion of your loan but who cares about that?).

If she has a $1,000 loan with a 5% interest rate, she will be paying more interest on that than a $100 loan with a 20% interest rate. That’s what she means by the loan with the higher balance sometimes being more sensible to pay off than the loan with the highest interest rate.

Sloane (#675)

@Katze I never had any problems applying the payment to principal, but my servicer would move my next payment, so that my payoff date was the same. I had to select the option to keep paying the minimum every month.

Also, since I had more than one loan through the servicer, I had to direct the payment to the particular loan that I was focusing on. Otherwise, the payment was split pro rata between the loans.

CL (#3,590)

@tuntastic No. You have to think of the entire debt as a whole: $1,100, of which $100 is incurring interest at a higher rate. Let’s say you have $100 to put towards your debt this month. Do you put it towards the $100 portion of your debt, or the $1000?

bgprincipessa (#699)

@CL But that’s not the right way to frame it, since she is not paying off the higher interest loan in its entirety.

cryptolect (#1,135)

@CL I don’t understand why people are disagreeing with CL. Whatever extra money Katze pays would be most efficiently applied to the higher interest loan. Think of it as the amount of interest saved just on that one payment. If you’re paying an extra $100 on a 2% loan, you’re saving $2. If you’re paying an extra $100 on a 5% loan, you’re saving $5. I am open to an explanation of how the relative balances change this calculation, though.

@fo (#839)

@cryptolect

Took me a while, but I *think* i figured it out:

I think she’s looking at the ‘total interest paid over the life of the loan’ in her spreadsheet. If not, then one of the low interest loans must be on a negative amortization repayment plan (perhaps unwittingly). If neither of those, then I don’t have a plausible explanation that makes sense.

Take if from someone who (as a couple) paid off about $100k in student loans (we’re ‘old’–comparable %age of tuition borrowing now would be well over $200k) *and* north of $50k in credit cards–you pay off the higher interest ones *first*, period.

If you need a proof, you need to set up the excel to account for a level aggregate payment on the loans, and vary how the monthlies are allocated early on–if you test it, you’ll see that allocating 100% of the ‘extra’ payments to the highest rate loan will end up with the lowest total interest.

CL (#3,590)

@bgprincipessa OK, seriously? Fine. Replace the $100 loan with a $200 loan. It is still most efficient to apply your extra $100 to the $200 loan. This is basic math, people.

@fo (#839)

@CL Right on!

Only makes sense as an aggregate, and with a difference in terms, too. If the $10,000/5% loan is still on a 10-year plan, and the $100,000/2% loan is on a 30, and one is looking at aggregate interest over the life of the loan, then paying down the cheaper loan looks like it makes sense.

Look at an amortization table for two loans *for the same amount*: a $10k loan @ 5% over 10 years accrues about $2,700 in total interest; a $10k loan @ 2% over 30 years accrues about $3,300 in total interest. Then, if you make an extra $50/month payment, over the life of each loan, you’d save about $1,000 doing it on the 10-year, but over $2,000 doing it on the 30-year.

So, looks obvious that you “save more” by pre-paying the cheaper loan first, but that’s forgetting a basic thing: time value of $$.

To see it clearly, one should assume the same level, total payment for all loans every month–what happens if you are paying $200 total to both loans, what results in less interest over 1-year, 5-years, 10-years, 30-years? Can *guarantee* that the lowest aggregate comes from allocating all pre-payment to the highest rate first, and then shifting the ‘savings’ from paying off the first to the other loan.

grog (#2,222)

I have never been allowed to make principal payments, despite multiple and varied attempts. I have 2 loans, both federal (Direct Consolidated Unsubsidized and Direct Consolidated Subsidized). They’re currently serviced by MOHELA.

The last rep I spoke with said that the loans are owned by the Department of Education and they have regulations that indicate ALL payments MUST be applied first to late fees (which I’ve never had), then to interest, then to principal. So since interest accrues daily, there’s always interest to be paid before principal.

This has bothered me for the ~10 years I’ve been paying. I’ve been meaning to file a complaint with the CFPB, but haven’t gotten around to it yet.

If anyone has any advice, I’d love to hear it!

Allison (#4,509)

@grog I’ve never tried making direct to principal payments with MOHELA, but when I increased my monthly payment (a whole $15) the amount applied to principal went up by almost the entire $15.

sea ermine (#122)

@grog I think you just have to make the payment bigger than the interest that occurs that day. So if you gain $10 in interest a day if you make a $20 extra payment half will go to the principal. Does that sound right? My loans are through a different servicer (but also owned by the department of education) and I haven’t had that problem at least not when I pay online.

cmcm (#267)

OH this seems like a place I can ask a question that I’ve been super confused about for awhile.

My student loans are currently deferred while I’m doing my PhD, but my two loans from my masters are still accruing some interest (a proportion of my Stafford Graduate loan, and the full interest on my PLUS loan), which they’ve told me comes to a total of about $181 a month.

I’ve been making payments of at least $200-300 each month in the hopes that I can chop away at the principal, but when I look online it says that each of these payments has gone entirely to interest. HOW IS THIS POSSIBLE? I feel like I’m just throwing money into the wind and hoping it sticks to my loan.

sea ermine (#122)

@cmcm How much interest do you accrue each month? I think some places will only let you pay to the principal if your interest is low enough. So if you started when you first got your loan with overpaying it would work but if time has passed and interest has built up enough that it makes up a large portion of your loan it wont work.

I think in your case I would send a check, with a none that says principal only in the memo, and attach a letter explaining your issue. Send it certified mail so that if any issues come up they can’t pretend they didn’t see the letter.

EA_Mann (#5,000)

@cmcm Are you making the 200-300 on your deferred loans or your interest accruing loan? and is this 200-300 the total payment or in addition to the stated monthly payment?

cmcm (#267)

@EA_Mann All my loans are deferred because I’m a student, but the PLUS loan is still accruing interest (8.6%) and the Stafford Graduate loan is accruing interest on the non-subsidized part of it (6.8%). So the 200-300 I’m paying, I pay whatever it says the accrued interest is for the lower one, and then bonk the rest over to the higher one.

cmcm (#267)

@sea ermine Unfortunately sending a check isn’t an option as I live in the UK, so it’s already a pain in the ass enough figuring out how to send payments for these things.

@fo (#839)

@cmcm Have you made the interest payments *every* month since the first day interest wasn’t deferred?

It is possible (I know some loans used to work this way) that none of the accruing interest has yet been capitalized (ie, added to the principal, as principal) and so you are paying down previously accrued interest that doesn’t (yet) count as principal.

If you’ve paid interest every month since it first started accruing (likely the month you took out the loan), then I have no idea.

cmcm (#267)

@cmcm I have not made payments every single month… so perhaps you have hit the nail on the head…

SterlingCooper05 (#2,529)

It is amazing what an extra $15 a month will do towards paying off debt. The method that worked best for me was having the minimum auto-drafted (to save that 0.25%!!!!) then making an additional payment online at the end of the month to the loan with the smallest balance. My interest rates were all within a half point of each other, so the balance determined my extra payments. My service companies had the option of advancing the due date or not, but the payment was always applied the same…interest first, then principal. I usually had to pay about a weeks worth of interest since there was a gap between my due date and the time I would make the additional payment.

I did this for 3 years and was able to pay off $93K in debt!

Blondsak (#2,299)

@SterlingCooper05
This is what I am doing too. I have “PAY YOUR LOAN” on my google calendar, so even though I already automatically pay my minimums I also receive a reminder to pay whatever extra I can. Right now I am paying off one higher-interest loan, but once that’s gone I’ll just throw money at the largest one, and so on and so on. So far this method has allowed me to pay off 1/5 of my debt in 6 months, setting me on track to have it gone within 3 years (barring any sudden unemployment, etc…)

Taylor (#1,339)

I’ve had wildly varying experiences with different lenders- Discover Student Loans’ online payment system straight-up had a box to check for “I want this payment to go to principal on Loan X, not Loan Y with the lower interest rate.” Wells Fargo, meanwhile, supposedly set up an alert on my account or something so they would “always” apply any extra payment to Loan X-not-Y and only to principal and without advancing my next payment*- but every month I was having to call them to make them fix it. I eventually wised up and now just make all extra payments by phone, so I can tell the person exactly what I want and get their name and ID number to follow up if it doesn’t go through right (but it consistently has when I have someone doing it for me over the phone, in realtime.)

*This is a whole other issue. Because my work reimburses [most of] my minimum loan payments each month, if I don’t have a minimum payment because it got advanced, that free money goes away forever. I NEED to be able to make a minimum payment each and every month, so I can turn the receipt over to work and get it reimbursed; if making an extra payment removes/delays next month’s minimum payment, I lose free money.

thegirlieshow (#5,285)

My three loans are all grouped together on the SallieMae website so I don’t think I can direct a payment to a specific loan online, but I will just suck it up and send a check with my extra payments. Excellent advice as always, Mike Dang!

Sheeped (#6,035)

Just an FYI – Sallie Mae is the biggest POS loan servicer out there…

You have to really, really dig through their website to find out how to make principle payments. The process I had to use (according to their website) in the past was to let the current month payment clear, then immediately (I think it was within 3-6 days of the payment clearing) call them and make a payment over the phone and specifically direct the employee where the additional payment needed to be credited. I did this with two loans at once and had approximately $50 left over in additional payment. I didn’t specify where that $50 needed to be applied and found the next month they had just put it toward the accrued interest rather than to any principle amount. You have to watch out with Sallie Mae, its very apparent they try as hard as possible to make it as hard as possible for you to pay down your debt.

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