Sallie Mae Question

[tim2]

I have a student loan with Sallie Mae and would like to start paying extra towards the principal.  On their website there is only 1 way to make a payment - it doesn't let you add to principal.  So I have sent them checks with "principal reduction" listed on the check and it still all goes to principal.  Monthly payment goes entirely to interest.  How can I reduce the principal??  Below is from their website.

How are my payments applied?

When we receive a payment, we usually apply it first to unpaid accrued interest, and then to the loan principal balance. (The order of the application may vary depending on the requirements of your Promissory Note.) Interest on your loan(s) accrues daily, so the total amount of interest you'll pay during repayment can vary depending on when your payments are received. It's to your advantage to send your payments on time, or early, to avoid paying additional interest.

[Anonymous]

I'm sorry I'm not fully informed about this myself, but what would paying the principle accomplish? Obviously, if Sallie-Mae charges simple interest (I'm assuming they don't), then the answer is that it reduces the amount you'll pay in the long run. Otherwise, you would just be squandering a perfectly good tax deduction on student loan interest.

Hope someone more informed can reply.

[SCF]

Paying extra on your student loans reduces how much you owe, and this can ultimately help you to pay off the loan early and pay less interest.  The money saved by paying early is generally greater than the money saved through the tax deduction.  For federal loans at least, there is no pay-off penalty (and I don't think most private loans have one either, but check your promissory note if you do have a private loan), so paying extra can be a good strategy to get out of debt faster.

As to why your payment is not going to principal, are you on a reduced payment plan?  If your entire payment, including the extra amount, is going to interest, it sounds like you are not paying the full amount due each month.  This can be OK, if you are on certain payment plans, its fairly common, but you should know that if you aren't reducing the principal, you aren't actually paying off the loan.

Can you tell us more about your balance, interest rate, and payment plan?  Usually when you make an extra payment, your choice is between pushing your due date forward (effectively paying next months bill), or leaving your due date the same and applying the payment to principal.  You may have to call Sallie Mae to change your preference, I've found their website to be a little unfriendly sometimes.

[Simply827]

I haven't made any large payments on my loans yet, so I have yet to tell if this is true but...

The website says if you pay extra and it is not sufficient to cover the next months payment, then the extra will go to principal.  If you do pay extra and it covers at least the next month's payment, you will be given the option to have the extra go to principal or push the next due date back.

If your extra payments are going toward principal either they aren't applying it correctly, or as an above poster stated, you aren't paying enough interest to begin paying principal. For example, my loans are on IBR and my payment is not enough to cover monthly accrued interest. Until I get all of that back interest paid off, I won't start to pay down any principal. I hope you take a good look at the statements they send each month. Are your loan balances actually going down?

[laz98]

I found it very easy to have any extra money applied to principal.  When I make my payments, it automatically asks me how I want to allocate whatever the extra amount is.  For example, if my payment due is $100, & I want to pay $125, it will ask me how I want to apply that extra $25.  I can apply it any way I want--either all to one loan, or to a couple of loans, etc.

[Simply827]

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@laz98 wrote:

I found it very easy to have any extra money applied to principal.  When I make my payments, it automatically asks me how I want to allocate whatever the extra amount is.  For example, if my payment due is $100, & I want to pay $125, it will ask me how I want to apply that extra $25.  I can apply it any way I want--either all to one loan, or to a couple of loans, etc.

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I just went and tried that online. About time they gave us that option. Thanks for the heads up!

[always41319]

I know this is an old thread, but I am about to start making payments and I want to know how this works when you enroll in automatic debit. I want to do AD since it reduces your interest rate, but I don't know when I should apply the extra payments so that they pay down principal in conjunction with my automatic monthly payments. Any advice?

[SCF]

When you make extra payments through the Sallie Mae website, you'll be able to choose whether you want it to go toward principal or the next month's payment.  Since you want to do automatic debit, I would make the extra payment when you have a $0 balance due - so after your debit posts to your account, but before your next statement is generated.  If you don't choose to apply the extra payment to principal, it will result in reduced balance on the next month's statement and I believe that Sallie Mae will only automatic-debit the amount you have due - so they may not pull your full payment amount.

[always41319]

Thanks. That's very helpful. I'll have to try it and see what happens.