What Happens if I Overpay My Student Loans?

What if I Overpay My Student Loans?

On the surface, it might seem like a good problem to have — somehow or another; you’ve overpaid on your student loans. Now they owe you.

Yes, that is a nice change of pace, but… now what? What should your next step be? Here’s what you need to know if you happen to overpay on your student loans.

Sort out the details

How did this student loan overpayment happen in the first place? You’ll want to figure that out, so you don’t repeat it in the future. A few scenarios that could explain it:

Scenario #1: You overpaid your student loan by making two payments in one month.

You hit a bookkeeping snafu and paid too much. In this case, federal law requires the holder of the loan to push up your next payment due date. For example, if your regular $100 payment is due in March and you sent them $200, your next payment isn’t due until May.

You may wish to let your loan holder apply the extra payment to April and be done with it. You can request to not push the payment due date up, or you could request a refund, but by the time the mess got sorted out, April’s payment would likely already be due anyway.

Scenario #2: You refinanced your loan or scheduled a total loan payoff, but you overpaid when your automatic monthly payment went through your bank account first.

Congratulations — you paid off your loan in its entirety. But, your payoff transaction and your monthly automated payment crisscrossed in cyberspace, and now you’re owed money from the loan holder.

Call and email (emails establish a paper trail complete with time stamps) the loan holder, explaining what happened. In the email, put dates, amounts and as many other details as possible. The representative can put in a request to give you a refund, but they’ll likely also tell you that it will take 30-90 days. Stay on top of them with frequent emails and phone calls.

Scenario #3: You overpaid your student loan because you thought to pay extra would go toward the principal, only to find out it goes to paying interest.

It sounds like a great idea — you’ll pay a little extra each month, reduce the amount you owe and pay off your loan quicker. It is a good idea, but you need to know that that “little extra each month” is applied to interest, not the principal.

If you wish to overpay your student loan to reduce your principal purposefully, you must provide that specific instruction to the lender. Otherwise, federal regulations require the financial institution to apply the extra money in this order:

  • Outstanding fees
  • Then interest
  • Then your principal

Contact the bank and let them know your wishes.

Confirm that your payments are applied properly

The best thing you can do to ensure you get any credits coming to you is to stay involved with your account. Sign up for online access to your account and log on frequently to see a breakdown of your payment history, including how payments are applied. Staying informed and asking questions when you’re unsure is the best way to pay off your loans quickly and efficiently.

Want to know how much Financial Aid you are eligible to receive? Find out Here