Quick question: I’m on PAYE, and have outstanding interest on multiple federal loans.  I want to pay down my loans with high interest rates.  Do I need to pay down all of the interest on all of my federal loans before I can begin to pay down principal on any of them?

Thanks.

You can target payments towards certain loans. If there is interest on those loans, the payments will go towards the interest first and then to the principle. Each loan is treated separately. You do not have to pay off the interest on all loans before anything goes to principle. You just need to pay off the interest of the particular loan you are targeting and the rest will go towards the principle of that loan. However, if you consolidate, it is considered one loan and you cannot target individual loans in the consolidation. If you go to your loan servicer’s website, it should be pretty easy to see how to do this.

Thanks for the response.  My loan servicer’s site said that interest had to be paid before principal, but it was not clear on a situation with multiple loans with interest.

For an income based payment amount, that will be evenly divided between all the loans that you have, and if you have interest on those loans, the money will go to that first, but if one or more of those loans didn’t have interest, then the money would go towards the principle of that loan. If you want to pay more, you can choose to apply money towards any loan that you have, and if there’s no interest left on that loan (regardless of the interest of the other loans) your extra money will go towards the principle of that loan. I know that Navient, Fedloan Servicing, and Nelnet have a website layout where you can clearly indicate how you want your overpayment to be applied to your loans.

Thanks.