How Payments Are Applied

If you're still in school at least half-time or in your grace period, you're not required to make monthly student loan payments. But if you're able to, that's great! It'll save you money in the long run. Since you're not yet in the loan status called "repayment" and you don't have an active Payment Schedule and Disclosure, there are different factors that determine how your payment is applied.

Payments Made within 120 Days

Payments Made After 120 Days

* For loans in forbearance, any amount that goes to principal will be applied to the highest interest rate loans, beginning with unsubsidized loans.

** For PLUS loans that are in repayment, have an active Payment Schedule and Disclosure, and have disbursements within 120 days, the payments will automatically be applied to interest and principal. If you want payments during this time to be applied as a refund, please send a written request asking for it to be treated as a refund. Keep in mind that the refund will not be considered a monthly payment so upcoming monthly payments will still be due.

For a Direct subsidized loan taken out after July 1, 2012 and before July 1, 2014, interest is not subsidized (i.e., not paid for by the government) during the loan's grace period. You're responsible for interest that accrues during your grace period. If you make payments during your grace period, any paid interest will not be capitalized.

Your student loan agreement requires us to follow federal rules on how we apply payments. The rules require that a payment be applied first to outstanding interest, and any remaining amount is applied to the principal balance.

If there are multiple loans in an account, after all interest is satisfied, any remaining amount is applied proportionately to the principal balance of each loan. For example:

• You have two loans—one with an outstanding balance of $3,000 and the other $2,000.
• Let's assume after all accrued interest is satisfied, that $50 remains.
• $30 will be applied to the $3,000 balance and $20 will be applied to the $2,000 balance.

To get the prorated ratios:

• Add the loan balances $3000 + $2000 = $5000.
• Then divide the individual loan balances by the total account balance to find the percentages.
  • Divide $2000 by $5000 = 0.40
  • Divide $3000 by $5000 = 0.60
• Those amounts are multiplied by $50 to determine the amount of the payment applied to each loan.
  • $50 x 0.40 = $20 applied to the $2000 loan.
  • $50 x 0.60 = $30 applied to the $3000 loan.

Out of your $100 monthly payment, $50 applied to interest and $50 applied to principal.

Regularly paying an excess amount is the fastest way to pay off your loans. Excess is defined as any amount above your total current amount due or the minimum scheduled monthly payment, whichever is greater. Excess is calculated within each account's billing period — beginning one day after your previous payment due date through your current payment due date.

Which Excess Payment Option Is Right For You?

Certain Factors May Hinder How Your Excess Payment Is Allocated

There may be circumstances that affect the way your excess payment is allocated. For example:

• If you experience a status change such as the application of a deferment or forbearance,
• If you receive a new Payment Schedule and Disclosure,
• If you experience an interest rate adjustment,
• If a previous payment is returned,
• If a disbursement is refunded, or
• If there's a payment correction that was requested prior to the payment being made.

Paying an excess amount may result in your account being paid ahead. Regularly paying an excess amount is the fastest way to pay off your loans. During this time, it means:

• If you're paid ahead and signed up for Auto Pay, automatic payments continue to be debited.
• Interest continues to accrue.
• You aren't considered past due if you stop making payments or pay less than your full scheduled monthly payment, but only until you're no longer paid ahead.
• It's best to continue making payments in order to stay on top of the accruing interest and prevent any loans from becoming past due (delinquent).
• Even if you are in a paid ahead status, you are still required to satisfy the minimum scheduled monthly payment amount before a payment is considered excess. Please refer to the section titled I want to pay more than is due (an excess amount) to learn more.

To find out if you're paid ahead and by how much, log in to your account (if you aren't already logged in) or contact us.

Even if you can't make a full, monthly payment, whatever amount you do pay will be applied in the same order as a monthly payment (to interest and then to principal). Depending on the amount you pay, it's possible the payment won't be sufficient to pay the accrued interest. If you have multiple loans in an account and the payment isn't sufficient to pay the accrued interest, the payment will be applied proportionately based on the amount of accrued interest on each loan.

For example:

The entire payment will be applied to interest. You will still owe an extra $90 when you make your next payment and your account may reflect past due.

If you have two loans in the account, the $30 payment will be applied proportionately to the interest due based on the amount of the accrued interest on each loan. If one loan has accrued interest of $20 and the other $40, the $30 payment will be split as follows:

• $10 will be applied to the interest due on the loan that has accrued interest of $20
• $20 will be applied to the interest due on the other loan

To get the ratios:

• Add the unpaid interest amounts $20 + $40 = $60.
• Then divide $20 by $60 = 0.33 and divide $40 by $60 = 0.67.
• Those amounts are multiplied by $30 to determine the amount of the payment applied to each loan.
  • $30 x 0.33 = $10
  • $30 x 0.67 = $20

If you're past due when you make a payment, the order in which your payment is applied is the same as when a current monthly payment is applied. Whether your loan(s) is on a standard repayment plan or an income-driven repayment plan, your payment is applied first to interest, then to principal. If the payment isn't sufficient to cover the interest, none of it will be applied to the principal. Keep in mind that no portion of the payment can be treated as excess until the delinquency and the current monthly payment have been satisfied.

If you have multiple loans in an account and the amount of interest owed is more than the amount of the payment, the payment will be applied proportionately based on the amount of accrued interest on each loan.

Payments must be applied first to interest, then to principal. This means all outstanding interest must be paid before any portion of your payment can be applied to principal. Below are common situations in which all, or most, of your payments will be applied to interest.

If you're on a graduated repayment plan.

In the early years of repayment, more of your payment will go to pay interest because the payments are lower than they will be later on.

If you've missed or skipped one or more payments and then make a payment.

Most, if not all, of that payment will be used to pay the accrued interest. And in some cases, it may not cover all of the accrued interest due.

If you're on an income-driven repayment plan.

Because you have lower than normal payments, more, or all, of the payment will be used to pay accrued interest.

You can make recurring student loan payments through Auto Pay, or make a one-time payment using Pay Online. Both options are easily available after you log in to your account. Other ways to pay include our mobile app, by phone, or by mail with a check.

Please contact us by phone, email, mail, or on your coupon/insert if you have any specific payment instructions not identified in this article.