Tips for Successfully Making Extra Student Loan Payments

In response to the coronavirus pandemic’s economic fallout, the U.S. government took the unprecedented step of pausing most federal student loan payments. Although the pause may be extended, it is currently set to expire on Dec. 31, meaning loan payments will resume in January.

While many borrowers struggle to afford their monthly student loan payments, some are fortunate to have the resources to make extra payments. By paying even a little more than your required monthly payment amount, you can significantly lower what you pay over the life of your student loans, retire that debt more quickly and potentially increase your ability to buy a home or car.

Here are three tips if you’re hoping to reduce your overall student loan balance by making extra payments:

— Make interest-only payments while in college.

— Use tried-and-true repayment strategies.

— Check how extra payments will be applied.

Make Interest-Only Payments While in College

You don’t have to make payments on your federal student loans while you’re enrolled in school, but if you have direct unsubsidized loans, they are still accruing interest. By paying just the interest while still in school, you may save lots of money down the road. That’s because you can avoid your interest accruing and capitalizing — being added to the principal — when it’s time to start repayment.

[Read: Reasons to Pay Student Loan Interest During School.]

When you leave school and your student loans enter repayment, any unpaid interest is capitalized, and new interest is calculated based on this increased balance going forward, which increases the total cost of the loan. By paying down as much interest as possible before capitalization, you can save potentially thousands of dollars depending on how much you borrowed for college.

Use Tried-and-True Repayment Strategies

Once you’re out of college and enter repayment, it’s important to take stock of what you owe and the interest rates on each of your student loans. Then look at your monthly budget and determine if you have any extra funds to pay toward your student loans.

To make a monthly budget, you can use an online budgeting tool — there are numerous free and paid options — or you can use an Excel spreadsheet, or even write down your income and expenses in a notebook.

If you determine that you can put extra money toward your student loans, consider using a combination of repayment strategies endorsed by consumer experts: the avalanche method and the snowball method.

[Read: What to Know About Federal Student Loan Repayment Options.]

Start with the avalanche method. Determine the most you can reasonably pay per month and apply that amount to the highest-rate loan first. Then move to the snowball method. Once the highest-rate loan is paid off, pay that same monthly amount toward lower-rate loans in order to pay them off even more quickly.

These methods will allow you to most effectively target your funds and keep your overall balance as low as possible until you repay your student loans in full.

Regardless of whether you’re making extra payments, be sure to make your regular payments before or on the due date. Otherwise, you may be hit with late fees.

Check How Extra Payments Will Be Applied

It may seem that making extra payments toward your student loans should be as simple as entering the payment on your loan servicer’s website. However, you need to be sure to check how your extra payments will be applied before you start making them.

Servicers are legally required to follow certain steps in applying your payments. When you make a regular payment and pay nothing extra, your student loan servicer must apply that payment first to outstanding interest and then apply any remaining amount to the principal balance.

[Read: When to Contact Your Student Loan Servicer.]

However, when you pay more than what is due, you have some flexibility in how the excess amount is applied. Servicers automatically apply extra payments to accrued interest first, and then to the principal of the loan with the highest rate. To make sure your extra funds go toward your principal balance, go to your student loan servicer’s website and indicate your preference for how to apply the extra money paid.

For instance, you could request that your loan servicer apply any extra amount to the principal of the highest-rate loan first. If all of your student loans have the same interest rate, you might request that the additional funds be applied to the one with the lowest outstanding principal balance.

If you don’t indicate your preference, the servicer is likely to spread your extra payments across your loans evenly. It may be better to make extra payments a few days after your regular monthly payments to avoid confusion and ensure the extra payment is applied properly.

Be sure to check that all of your student loan payments have been applied properly, and contact the loan servicer if something doesn’t look right.

If you’re lucky enough to be able to make extra student loan payments, you can save potentially lots of money and finish paying off your debt more quickly with a little planning and communication.

More from U.S. News

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Tips for Successfully Making Extra Student Loan Payments originally appeared on

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