How Student Loans are Applied

Did you know there are rules in your student loan agreement that all servicers are required to follow when applying payments to your loan? The rules require that outstanding interest and late fees (if applicable*) must be paid first, prior to a payment being applied to the loan principal.

However, when it comes to excess payments you have more flexibility. We automatically apply excess to:

  1. Accrued interest since your last payment.
  2. Principal of the loan with the highest interest rate.
    Note: If you’re in school, grace, or deferment, after outstanding interest for all loans has been paid it will be applied to the unsubsidized loan with the highest interest rate.

If you prefer the excess to be applied to a different loan or loans within the account, define your Excess Payment Preference. This can be done for just one excess payment or for all future excess payments.

This topic goes into detail about how we apply payments to an account and your options to have payments applied differently.

* There are no late fees on loans held by the U.S. Department of Education. Loans held by banks or credit unions, including private loans, may have late fees.

What is an Account?

Most students have multiple loans—one or more for each year of school. To reduce the number of payments you have to make each month, we group loans into accounts based on the loan type and lender. The interest rate on loans in an account can be different.

  • If you have four Stafford loans from the same lender, you’ll have a single account with four loans and one payment. Remember, the interest rates can be different.
  • Or, if you have four Stafford loans from two different lenders, you’ll have two accounts with loans in each.
  • Or, if you have a private loan and a Stafford loan, each will have their own account.
  • An account can also have a single loan in it.

Occasionally, you can have multiple accounts within the same loan program and lender.

Each account has a separate payment amount that applies to the loans in the account. If you have multiple accounts and send a check as payment, it’s important for you to identify to which account the payment should be applied. If we can’t determine to which account a payment should be applied, we will apply it proportionately according to its share of the whole—to all of your accounts.

Source: Great Lakes Educational Loan Service, Inc.

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