Waiting for page to load...
Smiling woman holding a glass at a restaurant.

How Payments Are Applied

Book Illustration Heart illustration Person illustration

Did you know there are rules in your student loan agreement that all servicers are required to follow when applying payments to your loan? The rules require that outstanding interest and late fees (if applicable*) must be paid first, prior to a payment being applied to the loan principal.

However, when it comes to excess payments you have more flexibility. We automatically apply excess to:

  1. Accrued interest since your last payment.
  2. Principal of the loan with the highest interest rate.
    Note: If you're in school, grace, or deferment, after outstanding interest for all loans has been paid it will be applied to the unsubsidized loan with the highest interest rate.

If you prefer the excess to be applied to a different loan or loans within the account, define your Excess Payment Preference. This can be done for just one excess payment or for all future excess payments.

This topic goes into detail about how we apply payments to an account and your options to have payments applied differently.

* There are no late fees on loans held by the U.S. Department of Education. Loans held by banks or credit unions, including private loans, may have late fees.

What is an Account?

Most students have multiple loans—one or more for each year of school. To reduce the number of payments you have to make each month, we group loans into accounts based on the loan type and lender. The interest rate on loans in an account can be different.

  • If you have four Stafford loans from the same lender, you'll have a single account with four loans and one payment. Remember, the interest rates can be different.
  • Or, if you have four Stafford loans from two different lenders, you'll have two accounts with loans in each.
  • Or, if you have a private loan and a Stafford loan, each will have their own account.
  • An account can also have a single loan in it.

Occasionally, you can have multiple accounts within the same loan program and lender.

Each account has a separate payment amount that applies to the loans in the account. If you have multiple accounts and send a check as payment, it's important for you to identify to which account the payment should be applied. If we can't determine to which account a payment should be applied, we will apply it proportionately according to its share of the whole—to all of your accounts.

Your Situation

If you're still in school at least half-time or in your grace period, you're not required to make monthly student loan payments. But if you're able to, that's great! It'll save you money in the long run. Since you're not yet in the loan status called "repayment" and you don't have an active Payment Schedule and Disclosure (PSD), there are different factors that determine how your payment is applied.

You make a payment within 120 days of your disbursement on your Stafford, Grad PLUS, or Parent PLUS loan. (This may also apply to private loans. Please refer to your student loan agreement.)

Auto Pay or Pay Online

When you make the payment on mygreatlakes.org you're given the option to:

  • Apply it as a refund.
    Refund payments reduce what you originally borrowed. Any interest charged on the amount you pay will be returned, and a portion of the disbursement fees may also be returned.

- OR -

  • Apply it as an excess payment.
    It will first be applied to interest across all loans, and then to the principal on the unsubsidized loan with the highest interest rate. If you want it applied to a different loan or loans within the account, please define your Excess Payment Preference.*

U.S. Mail or Bill Payment Service

It will automatically be applied as a refund to your unpaid balance unless you contact us in writing to ask that it be applied as a payment—first to accrued interest, then principal.**

You make a payment within 120 days of your disbursement on your private or federal consolidation loan.

Auto Pay, Pay Online, U.S. Mail, or Bill Payment Service

Your payment will be applied in this order:

  1. To accrued interest
  2. To the principal on the unsubsidized loans with the highest interest rate. If you want it applied differently, please define your Excess Payment Preference.*

You make a payment after 120 days from the disbursement date on any of your loans.

Auto Pay, Pay Online, U.S. Mail, or Bill Payment Service

Your payment will be applied in this order:

  1. To accrued interest
  2. To the principal on the unsubsidized loans with the highest interest rate. If you want it applied differently, please define your Excess Payment Preference.*

* For loans in forbearance, any amount that goes to principal will be applied to the highest interest rate loans, regardless of subsidy.

** For PLUS loans that are in repayment, have an active PSD, and have disbursements within 120 days, the payments will automatically be applied to interest and principal. If you want payments during this time to be applied as a refund, please send a written request asking it to be treated as a refund. Keep in mind that the refund will not be considered a monthly payment so upcoming monthly payments will still be due.

For subsidized Stafford loans taken out after July 1, 2012 and before July 1, 2014, interest is not subsidized (not paid for by the government) during the loans' grace period. You're responsible for interest that accrues during your grace period. If you make payments during your grace period, any paid interest will not be capitalized.

Your student loan agreement requires us to follow certain rules on how we apply payments.

Monthly payment amount:

$100


You pay:

$100


Your payment will be applied in this order:

U.S. Department of Education Loans

  1. Interest
  2. Principal*

Bank or Credit Union Loans, Including Private Loans

  1. Late fees (if applicable)
  2. Interest
  3. Principal*

Note: For income-driven repayment plans, the order is 1. Interest, 2. Late Fees (if applicable), and 3. Principal*


*If there are multiple loans in an account, after all interest and late fees are satisfied, any remaining amount is applied proportionately to the principal balance of each loan. For example:

  • You have two loans—one with an outstanding balance of $3,000 and the other $2,000.
  • Let's assume after all accrued interest and late fees (if applicable) are satisfied, that $50 remains.
  • $30 will be applied to the $3,000 balance and $20 will be applied to the $2,000 balance.

To get the prorated ratios:

  • Add the loan balances $3000 + $2000 = $5000.
  • Then divide the individual loan balances by the total account balance to find the percentages.
    • Divide $2000 by $5000 = 0.40
    • Divide $3000 by $5000 = 0.60
  • Those amounts are multiplied by $50 to determine the amount of the payment applied to each loan.
    • $50 x 0.40 = $20 applied to the $2000 loan.
    • $50 x 0.60 = $30 applied to the $3000 loan.

Paying an excess amount is the fastest way to pay off your loans. An excess amount is defined as any remaining payment above your total amount due or the minimum scheduled monthly payment, whichever is greater. Excess is calculated within each account's billing period — beginning one day after your previous payment due date through your current payment due date.

Example of an Excess Billing Period

Which Excess Payment Option Is Right For You?


Standard Allocation

(Most common)

We automatically apply the excess amount to the:

  1. Accrued interest since your last payment.
  2. Principal of the loan with the highest interest rate.
    Note: If you're in school, grace, or deferment, after outstanding interest for all loans has been paid, it will be applied to the unsubsidized loan with the highest interest rate.

And, your account will show by the excess amount.

If there are multiple loans in an account, after all interest is satisfied any remaining amount is applied to the loan principal with the highest interest rate. If you have subsidized and unsubsidized loans that meet this criteria, our standard applies it to the unsubsidized loan.

If there are multiple loans in an account with the same interest rate the excess is prorated between loans. For example:

  • You have two loans—one with an outstanding balance of $3,000 and the other $2,000.
  • Let's assume after all accrued interest and late fees (if applicable) are satisfied, that $50 remains.
  • $30 will be applied to the $3,000 balance and $20 will be applied to the $2,000 balance.

To get the prorated ratios:

  • Add the loan balances $3000 + $2000 = $5000.
  • Then divide the individual loan balances by the total account balance to find the percentages.
    • Divide $3000 by $5000 = 0.60
    • Divide $2000 by $5000 = 0.40
  • Those amounts are multiplied by $50 to determine the amount of the payment applied to each loan.
    • $50 x 0.60 = $30 applied to the $3000 loan
    • $50 x 0.40 = $20 applied to the $2000 loan

If an excess payment is not sufficient to pay all accrued interest, the payment will be prorated based on the amount of accrued interest on each loan. This can happen if you have an income-driven repayment plan.

Custom Allocation

(Least common)

If you prefer the excess to be applied to a different loan within the account, define your Excess Payment Preference. This can be done for just one excess payment or for all future (recurring) excess payments.

Keep in mind:

  • You can change your preference at any time.
  • If you make an online payment, you may override your custom preference with a one-time preference.
  • You will be alerted if your custom preference is no longer usable (e.g., when a loan is paid in full, transferred, etc.).

Certain Factors May Hinder How Your Excess Payment Is Allocated

There may be circumstances that affect the way your excess payment is allocated. For example:

  • If you experience a status change such as a deferment or forbearance is applied, a new Payment Schedule and Disclosures was generated, or you experience an interest rate adjustment.
  • If a previous payment is returned.
  • If a disbursement is refunded.
  • If there's a payment correction that was requested prior to the payment being made.

Paying an excess amount may result in your account being paid ahead. Paying an excess amount is the fastest way to pay off your loans. During this time, it means:

  • If you're signed up for Auto Pay, automatic payments will continue being made.
  • Interest continues to accrue.
  • You won't be considered past due if you were to stop making payments or paid less than your full scheduled monthly payment, but only until you're no longer paid ahead.
  • It's best to continue making payments in order to stay on top of the accruing interest and prevent any loans from becoming past due (delinquent).
  • Even if you are in a paid ahead status, you are still required to satisfy the minimum scheduled monthly payment before a payment is considered excess. Please refer to the section titled I want to pay more than is due (an excess amount) to learn more.

To find out if you're paid ahead and by how much, log in to your account (if you aren't already logged in) or contact us.

Monthly payment amount owed:

$100


You pay:

$125


$100 applied to the current payment due.

Remaining $25

After all accrued interest is paid, the excess $25 is applied to the principal of the loan with the highest interest rate.

Your next payment due is $75.

Want the excess to go to a different loan?
Create your Excess Payment Preference.


Even if you can't make a full, monthly payment, whatever amount you do pay will be applied in the same order as a monthly payment (to late fees, if applicable, and interest, and then to the principal). Depending on the amount you pay, it's possible the payment won't be sufficient to pay the accrued interest. If you have multiple loans in an account and the payment isn't sufficient to pay the accrued interest and any late fees, the payment will be applied proportionally based on the amount of accrued interest on each loan.

Keep in mind that you have options available to reduce your monthly payment amounts. Or you may be able to postpone payments. Check out Know Your Repayment Options for more information, or contact us for help.


For example:

Monthly payment amount: $120
You pay: $30
Late fees due: $0
Accrued interest: $60

The entire payment will be applied to interest. You will still owe an extra $90 when you make your next payment and your account may reflect past due.

If you have two loans in the account, the $30 payment will be applied proportionally to the interest due based on the amount of the accrued interest on each loan. If one loan has accrued interest of $20 and the other $40, the $30 payment will be split as follows:

  • $10 will be applied to the interest due on the loan that has accrued interest of $20
  • $20 will be applied to the interest due on the other loan

To get the ratios:

  • Add the unpaid interest amounts $20 + $40 = $60.
  • Then divide $20 by $60 = 0.33 and divide $40 by $60 = 0.67.
  • Those amounts are multiplied by $30 to determine the amount of the payment applied to each loan.
    • $30 x 0.33 = $10
    • $30 x 0.67 = $20

If you're not current when you make a payment, the order in which it is applied is the same way as when a monthly payment is applied. With a standard payment plan, your payment is applied to late fees (if applicable), then interest, then principal. With an income-driven repayment plan, it applies to interest, late fees (if applicable), then principal. If the payment isn't sufficient to cover the interest and late fees, none of it will be applied to the principal. Keep in mind that no portion of the payment can be treated as excess until the delinquency and the current monthly payment obligation have been satisfied.

If you have multiple loans in an account and the amount of interest owed is more than the amount of the payment, the payment will be applied to the loans proportionately according to its share of the whole — based on the amount of the unpaid interest due on each loan in the account.

Payments must be applied first to late fees (if applicable) and interest, then to loan principal. This means that only the amount that exceeds interest and fees owed is applied to the principal. Below are common situations in which all, or most, of your payments will be applied to late fee (if applicable) and interest.

If you're on a Graduated repayment plan.

In the early years of repayment, more of your payment will go to pay interest because the payments are lower than they will be later on.

If you've missed or skipped one or more payments and then make a payment.

Most, if not all, of that payment will be needed to pay the accrued interest. And in some cases, it may not cover all of the accrued interest.

If you have an income-driven repayment plan.

Because you have lower than normal payments, more, or all, of the payment will be needed to pay accrued interest.

You can make recurring student loan payments through Auto Pay, or make a one-time payment using Pay Online. Both options are easily available after you log in to your account. Other ways to pay include our mobile app, by phone, or by mail with a check.

Did you enjoy this topic? Share!