Take Charge to Pay Down Student Loans

Take charge.  That’s the message for those trying to pay down student loans and erase debt.  The Consumer Financial Protection Bureau (CFPB) analyzed more than 3800 complaints about private student loans and found what many of you already know: the companies that service loans often make it difficult and put “stumbling blocks” in the way of early, or quick repayment. The servicers also lose paperwork and impose surprise penalties.
Now, the CFPB has put the servicers on notice and told them they must follow the rules and cooperate to help you reduce or pay off your debt. But you can’t assume this will happen automatically and that’s why you need to step up to make sure that the servicers follow your instructions.
Courtesy Creative Commons via Flickr
Courtesy Creative Commons via Flickr
If you have more than one loan and you make payments, you must be explicit about how you want the payment allocated. It’s to your benefit to pay the most money on the loan that has the highest interest rate. You can save a big chunk of money in interest payments that way. But the servicer won’t automatically apply the most money to your highest loan. It’s more likely that they’ll spread it around.  That means you have to provide written instructions about how you want your money used to pay off your debts.
The CFPB suggests that you write a letter similar to this:
Dear Servicer:
I am writing to provide you instructions on how to apply payments when I send an amount greater than the minimum amount due. Please apply payments as follows:
1.  After applying the minimum amount due for each loan any additional amount should be applied to the loan that is accruing the highest interest rate.
2.  If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.
3.  If any additional amount above the minimum amount due ends up paying off an individual loan, please then apply any remaining part of my payment to the loan with the next highest interest rate.
It is possible that I may find an option to refinance my loans to a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, you should use the instructions outlined above.
Retain these instructions. Please apply these instructions to all future overpayments.
Please confirm that these payments will be processed as specified or please provide an explanation as to why you are unable to follow these instructions.
Thank you for your cooperation.


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Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created ConsumerMojo.com to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.