Save Money on Federal or Private Student Loans with One Message
You may be able to save money on your private or federal student loans with one message to your servicer. When borrowers make student loan payments their money pays off their outstanding fees first, then interest, then principal. If a borrower overpays their student loan the servicer often divides the amount paid between all outstanding loans. This means interest gets repaid every month, but very little principal is removed, so the interest just builds up again next month. By sending your servicer a message you may be able to focus your payments on taking down one loan at a time. This can lower how much you pay per month and affect how fast your loans are paid off.
The best strategies to avoid this income, focusing on paying off high interest vs. paying off low loans, are already mentioned in another blog post. However many servicers may require the borrower to send them a message before they take action on that strategy.
Once you have chosen which strategy you would like to pursue it’s time to send the email:
Email Composition Tips:
For borrowers interested in these strategies the Consumer Financial Protection Bureau has a sample letter to send to servicers located on this page: link
However, that letter was made for borrowers who wanted to focus on reducing their interest above all else.
If you want to write your own letter, we recommend including the following information.
- Tell the loan company you are instructing them on what to do when you are paying any money over the minimum amount.
- Inform the loan company what they should prioritize, such as high-interest loans or low principal loan, when you apply additional amounts to the loans.
- Inform the company what to do whenever multiple accounts fulfill the requirements. For example: if two accounts have equally high-interest rates, you may want the loan with the lowest principal to be paid. Without specifying this, loans payments may be split as they were before the e-mail. You may want to specify that only one loan should be paid off at a time so that there will not be a situation where repayments are divided.
- Ask to apply these instructions even if the loans are refinanced or handled by a third party.
- Finally, ask for confirmation that the orders were understood. Also, ask for an explanation in case these instructions cannot be followed.
With this email sent, a borrower may be able to better handle their standard student loan payments more effectively. Sending an e-mail like this may be one of the best strategies for repaying private loans.
Federal IDR Option:
For federal loans, asking your servicer if you qualify for an income-driven repayment (IDR) plan may be an even more effective email. IDR plans potentially lower a borrower’s monthly payments to 10 to 15 percent of their discretionary income, which can be as low as $0, and end in loan forgiveness after 20 to 25 years. Many servicers may not inform borrowers that IDRs are available for people in their situation.
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