Helping people understand student loans is our job at SALT™, and few are better at it than Betsy Mayotte—the director of regulatory compliance for American Student Assistance® (our parent company). We told borrowers to “Just Ask” her questions, so check out her answers below (as well as her cat—because if Piglet can’t make student loans better, what can?).
Paying The Principal
I would like to make a principal payment to help my child pay down a federal student loan. How can I do this, and how will it affect the regular monthly payments?
That’s very generous of you!! To make the payment, either call the loan holder to pay over the phone or find out the payment address. Make sure to include the borrower’s Social Security number or account number on your check.
Unfortunately, making a principal payment is a little more complicated. Federal student loan regulations require loan holders to apply payments in a specific order: first to late fees, then to outstanding interest, and finally to principal. So, you won’t be able to decrease the principal balance if your payment is less than what your child owes in interest.
If you make a large payment, the lender will automatically extend the due date by as many multiples of the monthly payment that you’ve sent (unless the loan is deferred). At this point, you will have two choices. If you instruct your child to continue making their regular monthly payments, you essentially give them some “wiggle room,” as the loan is paid ahead. (Note that if your son or daughter uses auto-debit to pay, they will want to call and request that the payment you’ve made NOT pay the loan ahead—otherwise the auto-debit will stop until the loan is due once again). If you don’t want the loan paid ahead, you or the borrower should call the loan holder and request that they pull the due date back.
As far as affecting the monthly payment amount, it won’t—unless the borrower specifically requests the loan be re-disclosed based on the new balance.
The bottom line is that the payment is applied to principal the same way regardless. It’s how the payment affects the loan in the long term that differs.
Bridging The Tuition Gap
I received what seems to be a full financial aid package of loans and grants that adds up to around $13,000. The problem is that I need another $25,000 to pay the bill! My parents are in no position to help, and all the private loans I see require a co-signer. Can you tell me about some that don’t?
I hear this question all the time—especially this time of year! I’m afraid that most if not all private loan programs require a co-signer for any student under the age of 21. I can’t recommend a private loan program, but your school may be able to tell you the lenders that tend to work with their students most.
I’m not sure if your parents are unable to assist you for credit, budget, or personal reasons, but you should know that they may be able to obtain a Parent PLUS loan for the amount you need. Some families utilize this option and work out an agreement where the student helps pay the parent’s loan. If your parents are denied the PLUS loan, you could be eligible for additional unsubsidized Stafford loans.
You also might try appealing to the financial aid office with your situation in case they can award additional aid. This is a good idea if you feel there is financial information the school may not be aware of.
Finally—and this is the tough part—have you considered attending a lower cost school? Even if it’s just for a few years? I don’t know what you are studying or what year you are in school, but if I assume it’s a 4-year degree and this is your first year, you could be looking at least $100K of student loan debt by the time you are done!! That’s a monthly payment of at least $1,200 per month. To put that in perspective, you would need to make almost $25K in salary JUST to make your student loan payment.
This kind of decision can be hard, but I know a lot of students who start out at a state or community college and transfer to the “dream school” after 2 years to keep their debt down.
Have a student loan question you need an answer to? Just Ask.
(Note: The questions and answers above are real; however, they have been edited for grammar and clarity, but not by Piglet.)