How to Properly Apply Bonus Payments to Loans

In this post I would like to focus on the trivial little steps that you need to take to ensure that your bonus payments on your loans are being applied properly. Depending on who the lender is, they may have different policies on this procedure, but I will point out a few of the tips I have learned from our lenders.

Sallie Mae & Sallie Mae Serviced Loans

Jason and I have most of our student loans through Sallie Mae. We also have a few loans through the Department of Education, but they are serviced by the Sallie Mae website, meaning that the Sallie Mae servicing procedures apply to them. 

Sallie Mae is in a constant state of revamping their website, which means that some days it just doesn't work, and other days it works but will be completely different from the site you saw the day before when you logged in. It is frustrating, but a few factors have actually improved over the course of their revamps, and their rules have remained the same. 

1) Loans are due on the 1st of the month, but they aren't assessed a late fee until the 5th. Submitting a payment online can take up to 4 days unless you pay extra to have the payment rushed (Rushed service online? This is a nonsense charge that they take advantage of for people who have to wait until the last second. The reality is that if they weren't in the business of taking your money, they could do all payments on the "rush" schedule for free.). 

2) Just because you send them extra money, doesn't mean they will apply it. Sallie Mae's policy is that even if you send an extra $100 in with your regular payment they will hold onto the $100 and apply it to the next month's interest. They will not apply it to principal unless you specifically write them a letter or email indicating which loan it needs to be applied to, and when it should be applied. The Sallie Mae site is set up to charge you a set monthly amount based on your loan amounts, and it splits up the payment automatically. Therefore, if you make the bonus payment with your monthly payment it will not have a set destination unless you tell them where to put it.

My letter usually says something like this: "In reference to account number XXXXXXX,  loan number XX-XX (Sallie Mae or Dept of Edu), please apply all extra funds from the payment made on mm/dd/yyyy to the principal amount on the loan immediately." Since you already made your regular monthly payment you shouldn't have any extra interest to worry about, and the entire amount can be applied to principal. The word 'immediately' is very important in making sure that the money isn't just set aside for that loan at a later date. Both our Sallie Mae loans and our Dept of Edu loans share the same account number, but are serviced separately, so they actually have over-lapping loan numbers (ie We have two loans that go by 01-01, but one is SM, the other is DoE), so make sure you specify which of the two you are applying the money to.  Check back over the next week to make sure that it was applied correctly, and get in touch with them ASAP if there is an issue. I use only their service email address, and they tend to respond within 24-48 hours.

3) If you have already made your regular monthly payment and you decide to go back and make an additional payment later in the month, the Sallie Mae website now allows you to choose which loan to apply the payment too. Instead of going to the default setup that splits your payment evenly, the website will actually allow you to choose which loan or loans to apply the extra payment to, and how much of the payment to apply to each one! This is a huge improvement over their previous system, but just to be sure I still send them an email to make sure that the payment is applied immediately. Why risk it? 

Private Lenders

Our largest loan ($27k) is through a private lender. Each lender has their own website and their own rules. It is important for you to get in touch with them and research how to apply extra payments to your loans. AES is nice enough to have a button that will allow you to pay extra on your loan instantly. They don't hold the money for the next month or anything else that would prolong your payments. This is very convenient, but I can't say that all private lenders give you this option, so it is definitely worth looking into. There are still a few of them out there that have very primitive websites, and actually require a signed letter and a check when making extra payments because those payments are handled by a specific department, instead of the automated system for regular monthly payments. Stay informed, make sure your money is getting to the right place every single time. Nobody can afford to have their money disappear, or to have it put on hold to go towards the next month's interest. That would defeat the whole purpose of sending the bonus payment.