If you have federal loans, you likely only have 1 monthly payment. BUT that doesn’t mean you only have 1 loan…
Unless you only borrowed federal money one time during your college years, then you definitely have more than one federal loan. Your loans are encompassed into one monthly payment to make it easier on you. However, there is a simple hack to pay off your federal loans more efficiently.
Let’s jump right into it.
What is incorporated into your monthly payment
When you have several different loans all jammed packed into one loan payment, the payment is divided up amongst all of the loans. The allocation of that payment depends on the balance of the loan and the interest rate.
You are able to see a break down of each loan balance and the interest rate through your loan servicer.
Here’s a screenshot of my personal federal loan account:
My federal student loans are serviced through Great Lakes Education Loan Service. If your loans are serviced through a different provider, your screen will likely look different.
Unsure who your federal loan servicer is? Check out the Federal Student Aid website to find out.
Allocate your federal student loan payment to your advantage
First and foremost, make sure your payments are on auto-debit.
Putting your payments on auto-debit is the easy way to knock down your interest rate while also making your life easier. You’re carrying enough debt… you don’t need a late payment added onto your credit score too. Auto-debit makes avoiding late payments very simple.
After you have your payments on auto-pay, give your excess cash direction. Allocate your excess payment in a way that aligns with your pay off plan. Allocation allows you to pay on a specific loan.
But make sure your monthly payment goes through first to ensure you’re paying directly on the principle. Otherwise, all interest will be paid first.
Allocation is key and I will show you why.
If you are using the snowball method, allocate 100% of your excess payment to go directly to the loan with the smallest balance. If you are using the avalanche method, allocate the excess funds to the loan with the highest interest rate.
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How to allocate | step by step
After your auto-debit has been paid, you’re ready to allocate excess funds. Sign into your account to pay online. Your auto debit will not be effected during this process.
First you must select your payment type. In this case, choose “other amount”. Then, simply input your payment amount.
Custom allocation
Next, you will get the option to choose standard allocation or custom allocation. This part is confusing because Great Lakes states that standard allocation is “most common”. BUT, what you’re trying to accomplish is above ordinary. CHOOSE CUSTOM ALLOCATION.
Check the box that states you would like to review and allocate your excess payment. This step is crucial!
CHECKMARK THE BOX.
Payment as a refund
After this step, you might get an option to allocate your payment as a refund or as a normal payment. You will only get this option if loans have been dispersed in the last 120 days.
If this does not apply to you, move onto the next step.
If you get this option, CONGRATULATIONS! You are super on top of it because that means you’re paying your debts early. This means you have the unique opportunity to give your loan servicer back money that they gave to you, as if you never even took out the loan.
Take advantage of this if you have the opportunity. After 120 days, continue on with this process of allocating funds.
How to allocate
Once you see a screen similar to this image above, now you are ready to allocate. Apply 100% of your excess payment to what ever loan fits your debt pay off plan.
Need help planning your debt free journey? I’ve got you covered!
Next, you’ll have one last option. Here, you will want to select “one time”.
Every time you make an excess payment, you will go through this same process. By selecting “one time”, you are in complete control of how your money is allocated.
If you select “recurring”, it might alter how your funds are allocated after you pay off a loan. When I selected this option, the next month my funds were not allocated correctly.
“One time” is easier, so just go with that.
Keep pressing on
Paying off student loans is hard. Every month you throw more money at these loans and it feels like you’re paying for nothing.
Whether you finished college or not, you’re paying for an experience that has come and gone. It’s a difficult thing to throw money at, but reducing your student loan debt is incredibly important for your financial future.
Allocating your funds will allow you to have more control over your money. YOU are putting your money to work and YOU are in charge of it.
Pay off your loans faster and more efficiently with excess payments and custom allocation. Stick to your plan and trust the process.
This post has been about federal student loans. Need more advice or inspiration to get you through? You will LOVE these posts:
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