I received an email yesterday that said “I want my extra payments to go towards reducing the principal instead of my future payments.”
Here is what they were referring to and why they were both right and wrong.
When you make extra payment, it will place your account into Paid Ahead Status. It is important to note that this does not affect your principal balance. Your payment will be applied the same way it always is (outstanding interest first, principal second).
What it does is in addition to reducing your principal is it also will reduce your future payments. So for example if your payment is $50.00 and you pay $75.00, your next payment due will only be $25.00.
This presents two benefits:
1)If you do not miss payments while on paid ahead status, you will pay off your loans earlier. This will save you interest
2)It doesn’t punish you for paying more. For example if your engine blows up one month and you can’t pay towards your loans if your loan is paid ahead a full month, you can skip that payment without delinquency or needing to use a forbearance or deferment to cover your payment
During Paid Ahead status you will continue to receive bills even if these bills read $0.00. Just remember even if it says $0.00 it benefits you to continue paying as much as you can.