<p>Pretend I have a federal student Stafford or Parent PLUS loan.</p>
<p>If I add extra to my monthly payment, is it best to apply it to principal or interest?</p>
<p>If I add extra to my monthly payment, does that lessen the term of the loan or does it reduce the amount of future monthly payments? For example, if I make 12 double payments for a year on a 10-year loan, does my loan end after 9 years or do my monthly payments get cut by 10% on maybe the next anniversary date of the loan?</p>
<p>Extra payments should always be applied to the principal. Reducing the principal reduces the amount of interest incurred in the long run. When/if you make extra payments, make sure you talk to the lender and ensure that the extra is applied to the principal.</p>
<p>Paying extra will reduce the term of the loan (how long it takes to pay it off). It will not reduce the monthly payments. </p>
<p>Paying 12 extra payments may reduce the total length of the loan by more than 12 payments. This is because by reducing the principal, you are reducing the total interest you will pay over the life of the loan.</p>
<p>At least with Parent Plus loans, the paperwork on repayment specifically states that extra amounts paid will first be applied toward interest, then any fees, and then principal. I don’t get the sense there is any way to change their policy. I was hoping to apply extra to principal every month, but it looks like it goes to the interest first.</p>
<p>I think there should be a way to tell them how you want the additional payments are applied. You would have to check with your particular lender. I know my son has been regularly paying extra on his Stafford loans and he specified that the extra go to paying down principal, and that is what is happening.</p>