In Episode 90 of Debt Payoff with Fexingo, Lucas and Luna unpack how student loan servicers allocate your monthly payment across multiple loans. Using a concrete example of a borrower with three federal loans at different interest rates, Lucas explains why servicers often apply extra payments to the lowest-rate loan first—costing you thousands in interest over time. He cites Department of Education rules from 2025 that require servicers to follow a specific order: accrued fees, then interest, then principal, and across loans proportionally unless you specify otherwise. Luna shares a tip about writing a separate letter with each payment to direct extra funds to the highest-rate loan. The episode also touches on how servicers profit from the float on misallocated payments and the recent CFPB guidance update. A must-listen for anyone with multiple federal student loans trying to pay them off efficiently.
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