Rep. Susan Davis (D-53) introduced legislation Thursday that would require extra payments on student loans go toward the principal of the loan first, rather than interest.
“Many people just assume that if they pay a little extra on a student loan, the surplus goes toward paying down the principal amount,” said Davis, a senior member of the House Committee on Education and the Workforce. “It can be discouraging to know that wasn’t the case.
“This bill is about giving people more options on how they want their money applied to a student loan. Default payments need to be altered to the benefit of the borrower, who should get ahead when they pay ahead.”
According to the Consumer Financial Protection Bureau, one of the chief complaints made by borrowers is how their student loan payments are processed. Instead of applying prepayments towards the loan principal, as the borrower likely expects, loan-servicers will often credit the balance towards future monthly payments.
Davis’ Student Loan Fair Prepayment Act would ensure that extra payments are applied first to the principal of the highest interest-rate loan, unless the borrower requests otherwise. This technical change would save borrowers a significant amount and help them pay off their loans more quickly, Davis said.
— From a press release by Rep. Susan Davis’ office
