Savanna Hoffman
Student loan borrowers often wonder if they can make principal-only payments on their loans. The answer is yes, it is possible to make principal-only payments on student loans, and doing so can help reduce the overall interest paid and accelerate the payback period. However, it is important to note that lenders typically apply extra payments towards outstanding fees and interest before the principal. Therefore, borrowers need to take specific steps to ensure that their extra payments are applied towards the principal balance. These steps may include specifying payment preferences through the lender's online portal, contacting the lender directly, or including Apply to Principal on the memo line of a cheque. By making principal-only payments, borrowers can save a significant amount of money on their student loans.
| Characteristics | Values |
|---|---|
| How to make principal-only payments | Online via the servicer's website, where you can specify how you want your extra funds to be divided. |
| Via check, where you include "Apply to principal" on the memo line for any extra payments. | |
| By calling your lender directly if you can't specify how extra funds should be allocated online. | |
| By setting up standing instructions online, telling your servicer to send any extra money toward the principal. | |
| By contacting your loan servicer and asking how to make occasional or regular principal-only payments. | |
| By refinancing student loans for better rates. | |
| By using a student loan prepayment calculator to see how much you can save in interest by paying extra. | |
| Benefits of making principal-only payments | Can reduce your amount of paid interest, helping you get out of debt faster. |
| Can save you thousands of dollars. | |
| Can accelerate the payback period and reduce overall borrowing costs. | |
| Lenders can't charge you a prepayment fee for paying your loan off early. | |
| Can lead to huge savings over time. |
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What You'll Learn
- Online payment platforms allow borrowers to specify that extra amounts are principal-only payments
- Lenders might apply extra payments to future bills unless directed otherwise
- Paying off interest first can make it easier to clear debt
- Lenders cannot charge a prepayment fee for paying off a loan early
- Contact your lender to specify how you want your extra funds divided
Online payment platforms allow borrowers to specify that extra amounts are principal-only payments
Making principal-only payments on student loans can help borrowers pay off their loans faster and reduce the overall cost of the loan. When you take out a loan, your monthly payments consist of the principal (the amount you borrowed) and the interest (the cost of borrowing the principal). By reducing the principal, you can decrease the total interest accrued over the life of the loan.
Online payment platforms often allow borrowers to specify that extra amounts are principal-only payments. For instance, if you pay online through the servicer's website, you may have the option to choose how the money is applied. There may be an option that says "other amount", where you can enter an extra amount you want to pay towards your loan that month, as well as where that money should be applied, such as to the interest only, the interest and principal, or just the principal.
If you pay by check, you can include "Apply to principal" on the memo line for any extra payments. If you cannot specify online how extra funds should be allocated for a given loan, you should try calling your lender directly. However, your lender may be required to pay interest first. So if you pay an extra $250 on your loans, the full $250 might not be subtracted from the principal balance. But once the lender makes any required interest payments, they would then allocate the remaining money according to your instructions.
It is important to regularly monitor your account statements to confirm that payments are applied correctly.
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Lenders might apply extra payments to future bills unless directed otherwise
When making extra payments on a student loan, it is important to be aware that lenders might apply these extra payments to future bills unless directed otherwise. This is because, when a lender receives a payment beyond the minimum due each month, they may simply apply it to next month's bill rather than using that money to lower the principal. Therefore, if you want to make a larger payment and have the extra amount applied to the principal, you may need to set up standing instructions online, telling your servicer to send any extra money toward the principal.
If you pay by check, you can include “Apply to principal" on the memo line for any extra payments. You can also try calling your lender directly if you can't specify online how extra funds should be allocated for a given loan. However, your lender may be required to pay interest first. So, if you pay an extra $250 on your loans, the full $250 might not be subtracted from the principal balance. But once the lender makes any required interest payments, they would then allocate the remaining money according to your instructions.
Online payment platforms often allow borrowers to specify that extra amounts are principal-only payments. For example, you might have the option to choose how the money gets applied, such as to the interest only, the interest and principal, or just the principal. Regularly monitoring account statements is crucial to confirm that payments are applied correctly.
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Paying off interest first can make it easier to clear debt
Paying off interest first can make it easier to clear your debt. This is because the interest on a student loan is calculated daily on the principal balance at that time. Therefore, the less principal there is left to pay, the lower your interest costs.
To ensure that your payments are applied to the principal, you may need to give specific instructions to your lender. Lenders will typically apply extra payments toward outstanding fees and interest before the principal. However, online payment platforms often allow borrowers to specify that extra amounts are principal-only payments. For example, if you pay online through the servicer's website, you might have the option to choose how the money gets applied. There may be an option for an "other amount", where you can enter an extra amount you want to pay and where that money should be applied.
If you pay by check, include "Apply to principal" on the memo line for any extra payments. You should also try calling your lender directly if you can't specify online how extra funds should be allocated. However, your lender may be required to pay interest first. So, if you pay an extra $250 on your loans, the full $250 might not be subtracted from the principal balance. But once the lender makes any required interest payments, they would then allocate the remaining money according to your instructions.
It is important to regularly monitor your account statements to confirm that your payments are applied correctly.
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Lenders cannot charge a prepayment fee for paying off a loan early
When you take out a student loan, you need to repay the principal balance (the amount you borrowed), the interest (the cost of borrowing the principal), and, in some cases, the fees (which are often paid upfront). Making principal-only payments on student loans can accelerate the payback period and reduce overall borrowing costs.
Lenders might automatically apply extra payments to future bills unless directed otherwise. To avoid this, you can specify that you want to make a principal-only payment. This can usually be done online, but if not, you can call your lender directly to instruct them on how you want your extra funds to be allocated.
It is important to note that lenders will typically apply extra payments toward outstanding fees and interest before the principal. Therefore, if you pay an extra $250 on your loans, the full $250 might not be subtracted from the principal balance. However, once the lender makes any required interest payments, they will then allocate the remaining money according to your instructions.
Student loans do not usually have prepayment penalties. This means that if you make an extra principal-only payment, it will lower the principal balance of your loan, and the lender will not be able to charge you a fee for paying some of your loan off early.
It is always a good idea to check your online account or statements regularly to ensure that your lender has applied your extra money to the principal of the loan.
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Contact your lender to specify how you want your extra funds divided
Making principal-only payments on student loans can reduce the amount of interest paid and accelerate the payback period. However, lenders will typically apply extra payments towards outstanding fees and interest before the principal. Therefore, it is important to specify how you want your extra funds to be divided.
Firstly, check your lender's online portal, as some platforms allow borrowers to specify that extra amounts are principal-only payments. You may find an option for “other amount” or “define your excess payment preference”, where you can enter an extra amount and specify that it should be applied to the principal. If you pay by check, include "Apply to principal" on the memo line for any extra payments.
If you cannot specify online how your extra funds should be allocated, contact your lender directly. You may need to send a standing order in writing. You can request that your lender applies extra payments to a specific loan, such as the one with the highest interest rate, to ensure you can save money and meet your debt repayment goals.
It is important to regularly monitor your account statements to confirm that your payments have been applied correctly. Lenders might automatically apply extra payments to future bills unless directed otherwise, so be sure to check for an option for “Do not advance the due date” if paying online.
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Frequently asked questions
Principal-only payments on student loans can reduce your overall borrowing costs and accelerate the payback period. When you take out a student loan, you need to repay the principal balance (the amount you borrowed), the interest (the cost of borrowing the principal), and, in some cases, the fees (which are often paid upfront).
You can make principal-only payments on private and federal student loans. If you pay online, you might have the option to choose how the money gets applied. There may be an option that says “other amount”, where you can enter an extra amount you want to pay and where that money should be applied. If you pay by check, include "Apply to principal" on the memo line for any extra payments.
Making principal-only payments on student loans can save you a significant amount of money. Since interest on a student loan is calculated daily on the principal balance at the time, the less principal you have left to pay, the lower your interest costs.
Ensure your payments make a dent in your balance by asking your lender to make principal-only payments on your student loans. Regularly monitor your account statements to confirm that payments are applied correctly.
