What you need to know – Forbes Advisor

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Paying off your student loans doesn’t just mean making the minimum payment each month. You can make a principal payment only, or an additional payment on your principal balance, to pay off your student loan debt sooner.

Here’s what a principal-only student loan payment is and how to make sure you’re paying it right.

What is a principal-only student loan payment?

Your student loan is made up of your principal balance or the amount you’ve borrowed. It also includes interest, or what you pay to borrow the loan, and any fees determined by the lender.

Each month, you are obligated to make at least the minimum payment on your student loans. This payment goes towards your principal balance, interest and fees.

In addition to your monthly payments, you can make additional payments that will be added to your principal balance. This money goes directly to the amount you borrowed, so you can pay off your student loans sooner than if you only made the minimum payment each month.

Interest charges on student loans are calculated per day based on the balance at that time. So if you make additional payments for the balance, you will also pay less interest over the life of the loan.

Is a principal-only student loan payment the best option for me?

If you are planning to pay off your student loan only in principal, you will need to make sure that you are in a comfortable financial position to do so. Consider doing them if:

• You can afford it. Not everyone is able to pay more than the required amount in a given month. If you recently received a work premium, you can use that money to make an additional student loan payment only in principal. If you get a raise, you can pay more than the minimum amount owed and put the extra money on the principal balance.

• You want to pay off your loans sooner. If you can afford to pay off your loans faster than your loan terms indicate, you can do so by paying only the principal. Not everyone is able to repay their student loans before the final deadline. Some borrowers, for example, sign up for income-based repayment plans, which match their income and expenses and offer a loan forgiveness after a certain number of payments. But if you have the money to do it and you’re not working on forgiving the loan, principal-only payments can help you pay off your loans quickly.

• You want to save on interest. You can save on interest by refinancing your student loans for a lower interest rate. But there are other ways to save on interest. As you make payments on the principal balance, the daily interest that accumulates on your loans will begin to drop. There are also cases where your interest will be capitalized or added to your principal balance. This is when you will pay interest in addition to interest. The less you owe on your principal balance, the less interest will be capitalized.

Understanding your student loan repayment rights

While the Consumer Financial Protection Bureau states that all student loan borrowers have the right to repay their loans as soon as they want, it can be much more difficult to do so in certain circumstances. For example, some lenders may institute a new disclosure, which is when the lender resets your monthly payment and repayment term, often resulting in a longer repayment period and higher interest charged. This can happen for a number of reasons, including selling your loan to another lender.

Even if your loan is re-disclosed, you can still make additional payments without penalty; Federal law prohibits prepayment penalties on federal and private student loans. You can ask your student loan manager to apply your additional payments to a specific loan, such as the loan with the highest interest rate, to make sure you can save money and meet your expectations. reimbursement targets.

What to expect from service agents when making a principal-only student loan payment

Many lenders and repairers have online portals where you can make monthly payments. These tend to have options to set up monthly automatic payment, make a minimum payment, and pay the statement balance. You might also be able to set up standing instructions to pay a larger monthly payment and send the rest of your payment to principal. Usually there is also an option that says “other amount” where you can enter the amount you want to pay for your loan this month.

When you select this amount, you can then choose whether this payment counts towards your monthly payment or an additional payment. Then you can select where that money is applied to, for example, interest only, interest and principal, or just principal.

Some lenders might not have these options. Depending on your loan manager, you may need to call to make a prepayment. It is important to detail your request to the customer service representative as clearly as possible. Ask for an email or confirmation number so that you have a record of your request.

If you are making a separate payment from the principal only, try not to make the payment along with your regular monthly payment. This way, the server agent is less likely to apply your second payment to next month’s payment, which would prevent you from saving as much money as possible in interest. Be as clear as possible with your lender about how you want your money to be managed.

It’s also a good idea to continue to check your account at least monthly, if not more frequently. Set up email alerts for any changes to your account, such as when a payment has been made or you have an upcoming due date.

If you can afford to make additional payments on the principal only, it will help you reduce the interest you pay over the life of your loan. While you don’t need to make any additional payments, the more you pay off your principal balance, the faster you’ll pay off your student loans.

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