Tips for Successfully Making Extra Student Loan Payments | Student Loan Ranger

In response to the economic fallout from the coronavirus pandemic, the US government took the unprecedented step of suspending most government student loan payments. Although the pause can be extended again, it currently expires on January 31, meaning loan payments will resume in February.

While many borrowers struggle to make their monthly student loan payments, some are fortunate enough to have the funds to make additional payments. By paying even a little more than your required monthly payment amount, you can significantly reduce the amount you pay over the life of your student loan, pay off that debt faster, and potentially improve your ability to buy a home or car.

Here are three tips if you’re hoping to reduce your overall student loan balance by making additional payments:

  • Only make interest payments while studying.
  • Use proven repayment strategies.
  • Check how additional payments are applied.

Only make interest payments during your studies

You don’t have to make payments on your government student loans while you’re enrolled in school, but interest will still accrue if you have direct, unsubsidized loans. By only paying the interest while you are still at school, you can save a lot of money later. That’s because you can avoid having your interest accrued and capitalized — meaning added to principal — when it’s time to start paying back.

When you leave school and your student loans are paid off, any unpaid interest is capitalized and new interest is calculated based on this increased balance, increasing the overall cost of the loan. By paying as much interest as possible before capitalizing, you could potentially save thousands of dollars depending on how much you borrowed for college.

Use proven payback strategies

Once you graduate from college and start paying back, it’s important to take stock of your debt and the interest rates on each of your student loans. Then look at your monthly budget and see if you have extra funds for your student loans.

To create a monthly budget, you can use an online budgeting tool — there are numerous free and paid options — or you can use an Excel spreadsheet, or even jot down your income and expenses in a notebook.

If you find you have extra money to spend on your student loans, consider a combination of repayment strategies recommended by consumer experts: the avalanche method and the snowball method.

Start with the Avalanche method. Determine the maximum amount you can reasonably pay per month and apply that amount to the loan with the highest interest rate first. Then switch to the snowball method. Once the loan with the highest interest rate is paid off, deposit the same monthly amount for loans with lower interest rates to pay off even faster.

These methods allow you to use your funds most effectively and keep your overall balance as low as possible until you have paid off your student loans in full.

Whether you’re making special payments, be sure to make your regular payments before or on the due date. Otherwise, you may be charged late fees.

Check how additional payments are applied

It might seem that making additional payments on your student loans should be as simple as entering the payment on your loan servicer’s website. However, it is important that you check how your additional payments will be applied before you begin.

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Service providers are required by law to follow certain steps when applying your payments. If you make a periodic payment and don’t pay anything extra, your student loan administrator must apply that payment first to the outstanding interest and then to the principal.

However, if you pay more than the amount due, you have some flexibility in applying the excess amount. Servicers automatically apply additional payments to the accrued interest first and then to the principal of the loan with the highest interest rate. To ensure your additional funds are credited to your main balance, visit your student loan administrator’s website and indicate how you intend to use the additional money paid.

For example, you might require your loan servicer to apply an additional amount first to the principal of the loan with the highest interest rate. If all of your student loans have the same interest rate, you can request that the additional funds be applied to the loan with the lowest outstanding principal amount.

If you don’t indicate your preference, the servicer will likely spread your additional payments evenly across your credits. It may be better to make additional payments a few days after your regular monthly payments to avoid confusion and ensure the additional payment is applied properly.

Make sure all of your student loan payments have been used appropriately, and contact the loan servicer if anything doesn’t look right.

If you’re lucky enough to be able to make additional student loan payments, with a little planning and communication, you can potentially save a lot of money and pay off your debt faster.


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