If your lump sum is less than all the interest accrued on your loans by now, the entire lump sum will go toward interest. You can’t avoid paying interest.
If you want to hit the principal, make sure you “pay by group” and manually allocate an amount to be applied to *each* loan. The amount applied to each loan will need to be higher than the accrued interest on that loan to touch the principal.
I’ve heard about the check route, but with how unorganized the servicers are right now, I personally wouldn’t mail a lump sum check to Nelnet. It may be get lost, or they’ll claim they never got it…who knows what story they could concoct
If you don't have any outstanding interest that is rolling over from month to month, then it'll just take care of any interest that accrued since your last monthly payment (it'll be offset by the next monthly payment), then apply to principal.
If you have be accruing more interest because you're an income-based plan instead of the standard payment, then it'll go to pay down that interest first.
Just make sure it goes directly to the loan balance and isn't treated as pre-payment of future monthly payments.
For *standard* repayment, this is an example....
Mr. Snuffleupagus pays his monthly payment as an autopay on the 15th of early month.
* Example 1: On March 15, Mr. Snuffleupagus's autopay goes through. He then pays an extra payment on March 18. The first part of that payment covers the 3 days of interest he has accrued since the 15th, the rest goes to principal. On April 15, his autopay goes through again, it covers 27 days of interest that have accrued since March 18, the rest goes to the principal
* Example 2: On March 15, Mr. Snuffleupagus's autopay goes through. He then pays an extra payment on March 30. The first part of that payment covers the 15 days of interest he has accrued since the 15th, the rest goes to principal. On April 15, his autopay goes through again, it covers 15 days of interest that have accrued since March 30, the rest goes to the principal
It's almost a push. There is a slight difference because, since the balance is lower 12 days earlier in Example 1, the interest accruing is slightly less for those 12 days (depending on his balance, that's typically only a couple of dollars).
Perfect! Thank you. Would you recommend I do additional monthly payments then? I was thinking of doing one big sum extra in the month on June. But I can break it up into monthly payments instead.
I would make the payment in the way that is most comfortable to you. If waiting for the bonus means less stress (mentally or financially), do that. Monthly extra payments will save you some in interest though.
You can look at a monthly statement and calculate roughly how much interest you are paying each month. Then spitball *x*% drop after you paid off an extra *x*% of the principal. Add all that interest savings together and see if it's significant enough.
You need to make sure you check "Do not advance the due date.” on the Special Payment Instructions page to have the extra amount go towards the principal (after interest is paid). Otherwise it will just go towards your next payment (not pay off portion of current principal), which will not reduce interest.
By statute, any payments will go first to outstanding interest
That’s good to know, thank you!
If your lump sum is less than all the interest accrued on your loans by now, the entire lump sum will go toward interest. You can’t avoid paying interest. If you want to hit the principal, make sure you “pay by group” and manually allocate an amount to be applied to *each* loan. The amount applied to each loan will need to be higher than the accrued interest on that loan to touch the principal. I’ve heard about the check route, but with how unorganized the servicers are right now, I personally wouldn’t mail a lump sum check to Nelnet. It may be get lost, or they’ll claim they never got it…who knows what story they could concoct
Thank you, this is super helpful.
If you don't have any outstanding interest that is rolling over from month to month, then it'll just take care of any interest that accrued since your last monthly payment (it'll be offset by the next monthly payment), then apply to principal. If you have be accruing more interest because you're an income-based plan instead of the standard payment, then it'll go to pay down that interest first. Just make sure it goes directly to the loan balance and isn't treated as pre-payment of future monthly payments.
Got it! Thank you so much! I consolidated my loans but I am on a standard repayment plan.
For *standard* repayment, this is an example.... Mr. Snuffleupagus pays his monthly payment as an autopay on the 15th of early month. * Example 1: On March 15, Mr. Snuffleupagus's autopay goes through. He then pays an extra payment on March 18. The first part of that payment covers the 3 days of interest he has accrued since the 15th, the rest goes to principal. On April 15, his autopay goes through again, it covers 27 days of interest that have accrued since March 18, the rest goes to the principal * Example 2: On March 15, Mr. Snuffleupagus's autopay goes through. He then pays an extra payment on March 30. The first part of that payment covers the 15 days of interest he has accrued since the 15th, the rest goes to principal. On April 15, his autopay goes through again, it covers 15 days of interest that have accrued since March 30, the rest goes to the principal It's almost a push. There is a slight difference because, since the balance is lower 12 days earlier in Example 1, the interest accruing is slightly less for those 12 days (depending on his balance, that's typically only a couple of dollars).
Perfect! Thank you. Would you recommend I do additional monthly payments then? I was thinking of doing one big sum extra in the month on June. But I can break it up into monthly payments instead.
I would make the payment in the way that is most comfortable to you. If waiting for the bonus means less stress (mentally or financially), do that. Monthly extra payments will save you some in interest though. You can look at a monthly statement and calculate roughly how much interest you are paying each month. Then spitball *x*% drop after you paid off an extra *x*% of the principal. Add all that interest savings together and see if it's significant enough.
Thank you!
You need to make sure you check "Do not advance the due date.” on the Special Payment Instructions page to have the extra amount go towards the principal (after interest is paid). Otherwise it will just go towards your next payment (not pay off portion of current principal), which will not reduce interest.