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Making extra payments on your student loans can help you save on interest and get out of debt faster. But if those extra payments aren’t applied to your principal, you might not see your balance go down. That’s why it’s crucial to know how to make principal-only payments on your student loans.

How to make principal-only payments on student loans

Consider refinancing student loans for lower rates

Make sure you’re paying off your principal

How to make principal-only payments on student loans

If you want to speed up your student loan repayment, here’s how to make sure that your extra payments are applied properly to make the maximum impact.

1. Figure out which loans you want to target

Before you can ensure your extra payments are applied correctly, you need to know exactly what your student loan strategy is. Which loan do you want to target first?

To figure this out, write down all your loans, including their principal amounts and interest rates. Consider whether you want to make extra payments on the loan with the smallest balance or highest interest rate first (these approaches are called the debt snowball and debt avalanche methods, respectively).

If two loans have the same interest rate, ask your loan servicer to apply your payment to the loan with the smallest balance first. This divide-and-conquer strategy works because it lets you focus specifically on obliterating one loan at a time, rather than just making a dent in your total loan balance. You can also use a student loan prepayment calculator to test the impact of your strategy.

At the same time, continue making minimum payments on all your loans, so that you don’t fall behind. Once you have a plan for your extra payments in place, you can ask your loan servicer to apply them correctly.

2. Talk to your lender

Every lender is different, but if you make a payment that’s more than the minimum without specifying where your money should go, your lender will decide how it’s divided.

Often, lenders will put your payment toward outstanding fees first, then interest and then your principal. To ensure your payments are making a dent in your balance, you need to ask your lender to make principal-only payments on your student loans.

You can start by calling your lender to discuss how to make principal-only payments. The Consumer Financial Protection Bureau has also created a sample letter that you can send to your lender via snail mail or email, if you want to use that.

Still, even with these instructions, your lender may be required to pay interest first. So if you pay an extra $250 on your loans, the full $250 might not be subtracted from the balance.

But once the lender makes any required interest payments, it should apply the remaining money according to your instructions.

3. Confirm extra payments are applied correctly

Depending on your loan servicer, you might be able to choose which loan receives your extra payments via your online account. In this example from Nelnet, you can review the details of your loans and direct a payment toward the loan you want to pay.

If you were using the avalanche method, you’d make extra payments on the loan with the 7.9% interest rate. If you were using the debt snowball, you’d target the loan with the $3,711.15 balance.

In your online account, you might also be able to select a “Do not advance the due date” option. This way, your payment won’t be used to cover the following month, but instead will be treated as the extra payment that it is.

If you do choose this option, make sure to keep up with monthly payments. Otherwise, you could fall behind and end up accruing even more interest. Signing up for autopay will help you stay on track.

If you decide to make extra principal-only payments on your student loans via a check in the mail, be sure to include “Apply to principal” on the memo line to ensure that you’re putting a dent in your loans.

Consider refinancing student loans for better rates

You’ll notice in the sample letter above that there’s a paragraph about student loan refinancing. How exactly does refinancing help you pay your loans?

Well, refinancing involves exchanging one or more of your old loans for a new one with a private lender, such as a bank, credit union or online lender. This process can be beneficial if you can qualify for a lower interest rate.

Not only could you save on interest, but you could also choose a shorter repayment term to get out of debt faster. That said, refinancing federal loans can result in a loss of certain borrower protections, so make sure you understand the potential downsides before making changes to your debt.

If you decide that refinancing is the right move, compare offers from multiple refinancing lenders to find your best terms.

Make sure you’re paying off your principal

If you want to get out of debt as soon as you can, making extra payments is the way to go. But if you use this method, make sure you know how to make principal-only payments on your student loans so you actually see your balances decrease.

Come up with a clear strategy for paying off your student loans, and communicate specific instructions to your lender for all your payments going forward. By taking these steps, as well as keeping an eye on your online accounts, you can ensure that your extra payments are applied correctly to your student loans.

Rebecca Safier contributed to this article.

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