Think you’re paying attention to your student loan interest?

Think you’re paying attention to your student loan interest?

Originally published at thefinancegames.com on March 21, 2016.

You might be paying WAY more in student loan interest than you should and it might just take one email to fix. Do you have 5 minutes to save hundreds or thousands on student loan interest?

As I was looking to start paying off student loans more aggressively, I researched to make sure my payments were being applied in the best way for me. Of course, the provider assured me (in their FAQs) that, I quote:

However, when it comes to extra payment amounts (see examples below), after all interest and late fees due have been satisfied, we automatically apply the extra amount to the unpaid balance on the loan with the highest interest rate (if there are multiple loans in your account).

Extra money paid in student loan interest

Imagine my horror when I saw the lowest interest loan had more paid off than my highest interest loan.

I emailed my student loan provider immediately! Their response was that before I make a student loan payment, I have to email them every payment and tell them which loan to apply it to. They do not actually automatically apply the payment to the highest interest loan unless this happens. In my case, the highest interest rate is nearly double the lowest!

Quick Tips

  • Even if the FAQ says that they apply the payment to the highest interest loans, double check. Check each account and see how each payment is being applied and if the low interest balances are being paid down first.
  • Ask for exactly what information is needed to apply the payment correctly.
  • Set up Boomerang with a reoccurring email to e-mail your provider. Make sure it includes all the information, in the exact format they requested. Since your monthly payments are applied on a specific day, it’s easy to set up an email going out a couple days beforehand.
  • Consider consolidating your student loans to lower your rate. That makes it a lump sum with one interest rate (but research it first! you may be losing some federal repayment benefits if you do, or adding more interest if you plan to repay faster!)

How much are you paying attention to your student loan interest payments?


Originally published at thefinancegames.com on March 21, 2016.