03.05.10 | A Tip for Private Student Loan Repayment
I was reading a post today in our forum about some of the more shady practices of student loan lenders, and it occurred to me that while we have a lot of blogs talking about how to get one, and why they are useful, repayment topics tend to be far and few between.
That being said, I’d like to give you a tip today to keep in the back of your mind (or use immediately, if you’re in repayment) to help smooth over paying back your loans.
Principal > Interest
If you are unfamiliar with the loan jargon, principal is the original loan amount you took out, before interest started adding up. So if you took out a $10,000 loan your freshman year, and when it goes into repayment the total bill is $13,000, $10,000 of that bill is principal and $3,000 is interest. You always want to pay principal down as quickly as possible, because the interest is calculated based on how much principal is left. Think of it like a credit card balance; the quicker you lower the balance of charges, the less interest builds on the account and the quicker you are able to pay it off.
If you ever are in a position to make an overpayment on your loan without spreading your finances too thin, absolutely do it! However, make sure that your lenders all know you want overpayments applied to principal. The reason why this is important is most, if not all, lenders have it in their fine print that if you pay over the monthly payment, they are allowed to distribute the rest to their benefit. That means if your monthly bill is $350 and you pay $500, they can decide to pay off interest with it instead of principal. Get in contact with your account manager to put a permanent note on your loan to apply all overpayments directly to your principal balance.
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If you specify the overpayment amount on the memo line or description of your payment and say "apply to principal balance" they are legally obligated to do so.
If you don't say anything and just give them extra money, yes, they will distribute it as they see fit.
March 9th, 2010 | #
I don't know of any private loan companies that would allow you to pay principal ahead of any interest. They make money on the interest so why would they let you cut into their bottomline by paying principal first?? Most that I'm aware post $$ to late fees first, interest second, and principal third. As high as the interest rates are on private student loans it doesn't make fiscal sense to allow it any other way.
March 9th, 2010 | #
… the title of the article is private student loan repayment.
March 8th, 2010 | #
This will not work for the federal college loan repayment program. Department of Education regulations mandate that overpayments be applied in this order: fees, interest, principal. The courtesy of applying overpayments to loan principal is a benefit available only through private loans.
March 7th, 2010 | #
thas was a wonderful information
March 6th, 2010 | #
thanks for the infor mation
March 6th, 2010 | #