One way to pay off your student loans faster is to, well, make extra payments. But rather than applying additional funds to interest payments only, you can request that they be applied to the principal balance. We’ve written about how to go about doing that here.
Another key for this method of repayment to work is to ask your student loan servicer—the company you’re paying each month, for example Navient, Nelnet, FedLoan or Great Lakes Educational Loan Services, among others—to ungroup your loans so you can apply extra payments to the loan of your choosing.
Why is this important? Danielle Schultz, a Certified Financial Planner, explains in her newsletter (lightly edited for clarity):
Too bad if [your servicer has] to make 20 pulls from your checking account. You may decide (which I recommend) to make extra principal payments on one loan and the minimum on all the others, but you should be able to decide which loan’s principal is being paid.
While I encourage you to keep shelling out the same monthly payment even as a loan is paid off (applying it to the next target loan), there may come a time when you need a smaller payment in a given month. If the loans are grouped you may still have the same payment—just like a mortgage, making extra principal payments doesn’t reduce your monthly payment (just the length of time you’ll pay).
Another benefit is that it makes paying your loans off via the snowball Method, whereby you pay off the loan with the lowest balance first and then the second smallest, easier. Research has indicated 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.
If need be, you can also make minimum payments on certain loans while forbearing or deferring others. That’s not a best case scenario, but it might become a reality.
To ungroup your loans, call your servicer. The information should be in your payment portal or monthly statements. You’ll then receive separate statements for each loan, and be able to allocate payments as you’d like.