Student loan repayment allocation and why you need to pay attention

Student loan repayment allocation and why you need to pay attention
Photo by Scott Graham on Unsplash

Make sure extra payments to your student loans actually make an impact

Sending extra money to your student loans is an excellent way to get to $0 debt faster and save money on interest. Finding extra money for your student debt is hard (that’s why we started Dolr 😊) so you need to make sure those excess payments are applied in a way that gets you to $0 debt the fastest.

By telling your loan servicer how to allocate your excess payments, you’ll get out of student debt faster and save money on interest.

Tell your loan servicer how to allocate excess payments

Excess payments are any amount sent to your loans above the minimum payment you are required to pay to your student loans each month. In order for these payments to make an actual dent in your student debt, you need to provide payment allocation instructions to your student loan servicer.

Why? Well, sometimes extra payments are not applied in the most favorable way. Your loan servicer may delay the application of your extra payment or spread it evenly across your loans. That’s not ideal.

Instead, make sure your extra payments are:

  • Applied to your principal balance whenever possible
  • Allocated to your loan with the highest interest rate first
  • Not marked as a credit towards next month’s minimum payment

By telling your loan servicer how you would like excess payments sent to them to be applied, you’ll get out of student debt faster and save money on interest. Payment allocation is the approach your loan servicer takes to applying the money you send to your student loans.

Ways to tell your loan servicer how to allocate payments

There’s a few ways to send payment allocation instructions to your loan servicer.

Go to your loan servicer website and search for “payment allocations”

Your loan servicer website should have information about how they allocate your payments as well as instructions for how to send instructions to them if needed.

Links to some of the most common loan servicers payment allocation pages are below:

Great Lakes Navient Nelnet
Fedloan Mohela Firstmark
SoFi Heartland ECSI Aspire
Granite State EdFinancial AES

Send them an email (or letter 🐌)

The Consumer Financial Protection Bureau (CFPB) published a sample letter for student loan borrowers to send to their loan servicers with payment allocation instructions. You can also take the text they provide (copied below) and send it in an email or through your loan servicer’s “Contact Us” page.

I am writing to provide you instructions on how to apply payments when I send an amount greater than the minimum amount due. Please apply payments as follows:

After applying the minimum amount due for each loan, any additional amount should be applied to the loan that is accruing the highest interest rate.

If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.

If any additional amount above the minimum amount due ends up paying off an individual loan, please then apply any remaining part of my payment to the loan with the next highest interest rate.

It is possible that I may find an option to refinance my loans to a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, you should use the instructions outlined above.

Retain these instructions. Please apply these instructions to all future overpayments. Please confirm that these payments will be processed as specified or please provide an explanation as to why you are unable to follow these instructions.

Thank you for your cooperation.

All done!

That’s it! Keep up the good work. If you’re wondering where you can find additional sources of cash for your student loans, create a free account with Dolr.  😊

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