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Consumer advisory: Stop getting sidetracked by your student loan servicer


Over the last several years, many Americans have been able to save on monthly payments on their mortgages and other loans by refinancing to the low interest rates available in the market.

Unfortunately, with few refinancing options, many student loan borrowers tell us they feel stuck in loans with high rates, well after they’ve graduated and landed a job.

Since many borrowers can’t refinance, one of the only ways to avoid paying unnecessary interest is to pay their high-rate loans off more quickly. According to the Truth in Lending Act, your lender or servicer cannot assess any penalties or fees if you prepay your private student loan.

Recently, we released a report that describes how the payment processing policies of private student lenders and loan servicers may be sidetracking responsible borrowers looking to pay off their loans more quickly. If you have several loans associated with the same loan servicer (the company that sends you a bill each month) and you don’t provide instructions, your servicer will generally decide how to allocate your payments in excess of the amount due.

Leaving this decision up to them isn’t always the best choice.

Your student loan servicer should listen to your instructions about which loan your additional payment goes toward when you submit your payment.

Here’s why providing instructions to your servicer can be a good idea:

  • If you direct any extra money to your highest interest rate loan first, you may save hundreds of dollars or more in extra interest payments and you may be able to get out of debt faster.
  • If you don’t tell them what to do, your servicer will apply extra payments as they see fit, in most cases spreading your money out across all of the loans on your account.
  • This means that you’ll pay down your debt slowly, and you’ll pay more money in interest over the life of your loan.

To help you explain to your servicer what it should do with your money, we’ve put together some sample instructions you can send to your servicer to ask them that they direct any extra payments toward your highest-rate loan. Helpful servicers will generally accommodate your request. You’ll want to be sure your servicer responds to your request so you know if you need to send additional instructions.

You can download a sample letter to mail to your servicer, or you can use the text below to provide instructions using the “Send a Message” or “Contact Us” feature when you log into your account on the servicer’s website:

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:

  1. 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.
  2. If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.
  3. 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.

You’ll want to save the message you sent for your records.

For most borrowers, it makes sense to direct any extra payment toward your loan with the highest interest rate – this is the fastest way to save the most money over the long term. For other borrowers, saving the most money might not be their main goal. You may be interested in paying extra each month on certain loans in order to improve your credit profile, qualify for a mortgage, or eliminate a monthly bill. You should weigh all of your options.

You can also submit a complaint online.

If you have questions about repaying student loans, check out our Repay Student Debt tool to find out how you can tackle your student loan debt.

For more information on private student loans and other consumer financial products or services, visit Ask CFPB.

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  • Robert Proudfoot

    Great advice for those who have private loans. A point of clarification, should borrowers with 1) Direct Federal Loans and/or 2) legacy FFELP loans be sending this letter to their federal loan servicers? Do federal loan servicers also apply extra payments evenly across loans unless there is borrower instruction otherwise?

    I always get confused on whether we are talking about the private lender’s loan servicers or private lenders and federal loan servicers.

    • Darna22

      I worked for a student loan servicer (FFELP and Direct) for seven years. If there was no instruction from the borrower/payer on how to apply an additional payment, we applied the extra money proportionally to all loans. I believe the regulations required us to do it that way, unless there was a borrower instruction to apply the money differently. So you’ll likely get the same result from any servicer.

      • tinkbelle87

        The problem, at least for me, is not that they are distributing the extra money across my loans. Instead, when I give them instructions to apply the extra money to the principle, they also advance the due date for that particular loan. Therefore when the next bill/payment comes along, the minimum due for that particular loan is $0.00 and the money then gets distributed to the rest of the loans. This just defeats the purpose of sending in the extra money as it counts as a future payment rather than applying it to the principle and continuing payment allocation as usual. There is no way to get ahead when they do this and no matter how many times I explain exactly what I want done, it almost always gets messed up or someone tells me my instructions are impossible. The amount of time I’ve wasted talking with my servicer and checking every penny of every payment is just incredible. They also refuse to raise my payment amount. In fact, they keep lowering my payment to make sure I stay on their payoff schedule meaning it will always be a headache to payoff my loans early.

  • ebog

    I totally agree with the above post. Really for student loans currently have a lot of disadvantages and danger. I do not think there is anything interesting. Great article.

  • johnson1234565

    It’s time to restore full consumer protections to ALL student loans, private and public.

  • abcd

    called CFPB but unhelpful, rude and clueless rep couldn’t answer my question – asked me to post on twitter – unbelievable!!

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