Sabotage Proof Your Private Student Loan Payments!
October 24, 2013

If you’ve got private student loans mixed in with your educational debt, are you having problems with your lender? The Consumer Financial Protection Bureau (CFPB) has received roughly 3,800 complaints about private student loan lenders in the last 12 months. About half of the complaints CFPB received related to payment processing inaccuracies.

Of the payment processing complaints, one recurring topic is how additional payments were posted to accounts. We always advise that if you have extra money to devote to your student loans that you pay additional sums on your highest interest rate loans. But what CFPB reports is that some borrowers see their additional payment posted to subsequent monthly payments rather than principal, or across all accounts rather than just the one.

Half of the complaints were directed at Sallie Mae, which makes sense as they are the lion’s share lender in the market. According to CFPB, consumers are “unable to verify whether payments are appropriately applied when they make additional payments in order to pay off their loans more quickly.” This is made more challenging when a borrower has multiple loans with the same servicer and attempts to target one loan to fast track for payoff because it has a higher interest rate or balance.

Without specific information from you on how you want the extra payment applied, the lender will use their established policies to determine how they handle it. They may apply it to future payments rather than principal. They may apply it proportionately or may apply it split evenly. None of these are what you want to get the best result and reduce the amount of interest paid.

CFPB also reported problems when a borrower has multiple loans and sends in an underpayment because they cannot afford to send in the full payment. If the lender applies the payment proportionately or evenly, late fees will be maximized. If the payment is applied to the smallest payment first and then the next larger, late fees and interest will be minimized. But typically a subsequent underpayment would go to satisfy whichever balance wasn’t paid last time before going toward other loans.

Here are some steps you can take to sabotage-proof your student loan payments:

#1 When you want to make additional payments on your loan, you will likely need to make the payment outside of your normal channel (such as auto-debit).

#2 Sending in payment by check with written instructions may get you a better result (even though this seems antiquated).

#3 Send your additional payment as soon as possible after your standard payment so that there is no confusion about it being applied to a future payment.

#4 Spell out in the written communication that you do not want it applied to future payment or interest, only to your principal.

#5 Be sure to spell out clearly which loan the payment is to be applied to if you have more than one payment and be sure to include that loan number in the letter that accompanies the payment.

#6 Be sure to follow up to ensure the payment posts in the manner requested.

#7 If it doesn’t post as requested, immediately contact your lender. Keep a copy of your letters sent and be prepared to provide a copy of the canceled check if requested.

#8 If the lender continues to post your payments contrary to your instructions, ask to speak to a supervisor at their customer service center. Let them know if your account isn’t corrected and additional payments applied as requested, you will make a complaint to CFPB. Request that corrections include retroactive adjustment to any interest accrued.

#9 If your lender refuses to make the requested correction or routinely mis-posts your payment, you may need to make a formal complaint to the CFPB to encourage your lender to correct your account and to be more compliant when processing subsequent payments.

#10 Sign up for a free student loan management account at so you can track your payments to verify if your regular payments and any additional payments were processed correctly. If you have loans from multiple lenders, our dashboard is the simplest way to track them all in one place.

Check out our blog for more tips on dealing with your student loan debt and visit our student loan help center for How To guides on many critical student loan topics.