Ask the Student Loan Officer to Ungroup Your Loans
One way to pay off student loans faster is to make additional payments. But instead of using additional funds only for interest payments, you can request them to be credited to the main balance. We wrote about how to do this here .
Another key to the success of this repayment method is to ask your student loan service provider – the company you pay every month, such as Navient, Nelnet, FedLoan, or Great Lakes Education Loans, among others – to ungroup your loans so you can apply additional payments to a loan of your choice.
Why is it important? Daniel Schultz, a Certified Financial Planner, explains in his newsletter (slightly edited for clarity):
It’s a shame if [your service staff has to] take 20 shots from your checking account. You may decide (which I recommend) to make additional payments on the principal of one loan and the minimum on all the others, but you should be able to decide which principal the principal is being paid on.
While I recommend that you continue to shell out the same monthly payment even after the loan is paid off (applying it to the next targeted loan), there may be a time when you need a smaller payment in a particular month. If the loans are grouped, you can still have the same payment – as with a mortgage, additional principal payments do not reduce your monthly payment (only the time over which you will be paid).
Another benefit is that it makes it easier to pay off loans using the snowball method , where you pay off the loan with the lowest balance first and then with the second lowest balance. Research has shown that the snowball method is more effective for many people than the avalanche method, in which you pay off the loan with the highest interest rate first.
You can also make minimum payments on certain loans, if necessary, while withholding or deferring others . This is not the best scenario, but it can become a reality.
To ungroup loans, call Customer Service. The information should be on your payment portal or monthly reports. You will then receive separate reports for each loan and will be able to distribute payments as you see fit.