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I'm attempting to make an overpayment to my student loans and wish my payment to not defer my monthly payment date, not alter my payment schedule, not pay off any unpaid interest, and only be applied to the principal of the highest interest loan with the highest balance. Using the template letter from the CFPB, found here, I've drafted the following:

I am writing to provide you with instructions on how to apply the funds for the enclosed payment:

The full amount of this payment should be applied to the principal of the highest interest loan with the highest balance.

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 principal of the loan with the highest interest rate and highest balance.

No part of this payment should be applied to my monthly payment nor be applied to unpaid interest and the payment date should not be postponed because of this payment.

My loan servicer is Navient, who has gotten in trouble for not following requests from borrowers, so I want to make my letter as clear and concise as possible. Is this at all well worded or does it need modifications to be absolutely correct?

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  • Please know this: you are not alone. Student loan servicers are pretty horrible and your difficulties are experienced by many. Keep fighting and make these loans go away! You can do it!
    – Pete B.
    Oct 10, 2018 at 10:44
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    Have you checked your existing agreement with them? It may already have explicit rules about how payments are applied.
    – jcaron
    Oct 10, 2018 at 10:47

2 Answers 2

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The sample letter that CFPB provides is as follows:

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.

You have combined 1) and 2) into one item, which makes it ambiguous (should payments be applied towards highest interest with ties going to highest balance, or go to highest balance with ties going towards highest interest?). Also, while the sample letter says highest interest with ties going to lowest balance, you've said to put payments towards highest balance. I recommend keeping the lowest balance suggestion of CFPB: fewer loans, besides making your repayment simpler, will likely mean lower minimum payments.

You've added "monthly payment nor be applied to unpaid interest" to the sample letter. That doesn't make sense: you want your monthly payment taken care of (presumably, you mean it shouldn't be applied towards your next monthly payment). Also, all unpaid interest in added to your principal, so it doesn't make sense to differentiate between the two. A better version of your final paragraph would be "Credit for the payment should not be deferred to my next monthly payment. The payment should be immediately applied to the principal and reduce the amount accruing interest."

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  • 1. This is an overpayment separate from my monthly payment, so I do want to specify that this payment is not my normal monthly payment. 2. The highest interest with highest balance is being used to reduce the amount of interest on that one loan.
    – Nielsvh
    Oct 10, 2018 at 20:17
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I'm not familiar with the system, but if your agreement allows you to specify how payments should be allocated (you should check whether this is the case), consider making it simpler for the service provider. Make 2 payments each period:

  1. The exact amount needed to cover interest payments for the period. Instructions: "This is the scheduled interest payment for the period from (start date) to (end date)."

  2. Look at the loans, including interest rates etc, and pick the one you want to reduce first. Instructions: "This is an extra payment to reduce the principal outstanding for the XYZ loan."

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