A few months ago, we took a look at complaints and other input from private student loan borrowers. Many of you told us about stumbling blocks you face when trying to pay down your loans more quickly. In particular, we frequently hear that the process to allocate an extra payment to your loan with the highest interest rate – generally the best way to reduce your overall interest expense – is hard to navigate.
We wanted to help student loan borrowers who are trying to pay down higher-rate loans, so we created a sample letter that borrowers can send to their student loan servicer. This letter tells the loan servicer that any future payment greater than the amount due should be applied to the highest-rate loan.
We also asked student loan servicers to tell us more about their policies when borrowers are looking to pay off their loans more quickly. Many of them responded and here’s some of what we found:
- Some servicers told us they have changed their policies so that extra payments are allocated to individual loans with the highest interest rate.
- When making payments through your bank’s online bill pay service, any written instructions you provide to your service may not be forwarded on.
- Some servicers will allow you to provide standing instructions on how to allocate payments to your account, so you can avoid making calls and writing letters each and every month .
- Servicers do not seem to be proactively reaching out to consumers who regularly make extra payments on ways to provide instructions.
Check out the full summary of what we heard and tell us your story about your payment processing experience. If you are facing a specific problem with your student loan servicer, you can also submit a complaint online or by calling (855) 411-2372.
We recently finalized a rule to supervise certain nonbank student loan servicers to make sure they’re following the law.