4 Steps for Prepaying Student Loans the Smart Way

After Teresa Borrenpohl earned her bachelor's and master's degrees from the University of Montana, she didn't want her student loans weighing her down, even for the standard 10 year repayment timeline.

"It wasn't just 10 years -- I didn't want my loans around for five years," she says.

Borrenpohl and her husband starting funneling an extra $2,000 per month toward her college debt and paid off $36,000 within a year and several months, she says.

Their accomplishment was partially due to "putting every extra penny that I had toward student loans," says Borrenpohl, who is pursuing a doctorate at Idaho State University and writing her dissertation on the level of understanding that students have about their loans. But she also tackled her bills strategically, clearing more expensive unsubsidized loans before repaying lower-rate subsidized ones.

[Learn how to pay off student loans within five years of graduation.]

A little extra cash can go a long way toward tamping down interest on student loans and ultimately eliminating them. But students must do the legwork to verify that their prepayments are correctly and strategically applied to their debt.

"It's not just as simple as writing a check," says Adam S. Minsky, an attorney specializing in student loan debt.

Here are four steps for prepaying student loans the smart way.

1. Don't rush: While borrowers may leap to tackle student loan debt the minute extra cash starts rolling in, experts caution against it.

Instead, students should first ensure that they have an emergency fund to cover between three and six months of living expenses, said Mark Kantrowitz, senior vice president and publisher at Edvisors.com, through email.

They should also gauge whether some of that money may serve them better in a retirement account, especially if they can secure a company match, or paying down a high-rate credit card, say experts.

"It requires some more financial analysis," says Andrew Josuweit, CEO of Student Loan Hero, an online platform that helps students manage their loans.

2. Choose a strategy: Savvy student loan borrowers should devise a plan of attack to make their extra payments go furthest.

In general, paying down the loan with the highest interest rate first, called the avalanche method, will erase the debt faster.

Those who need a psychological boost can choose to repay the smallest loans first in order to eliminate them and feel inspired by their progress. This is called the snowball approach. But, warns Kantrowitz, it "takes longer to pay off all the debts and will cost more than paying down the loans with the highest interest rate first."

For borrowers with both private and federal loans, "I would encourage a borrower to pay off private loans first," says Josuweit. "Federal loans come with a lot of protections."

Those protections can include loan forgiveness and income-based repayment for eligible borrowers.

[Test your knowledge on student loan repayment.]

3. Communicate your strategy: The company servicing a borrower's loan may not apply extra payments in a way that benefits the borrower most, say experts.

A loan servicer may spread extra payments evenly across all loans, even if some carry higher interest rates than others. Or the company may treat the prepayment as an early payment and not bill the borrower the following month.

Josuweit recommends that borrowers call their servicer before making extra payments to learn how to best communicate how they'd like the money applied.

In some cases, the lender's online system may allow borrowers to specify where extra payments should go. In other situations, borrowers may need to send a separate check.

If a paper check is necessary, students should include a cover letter identifying how the extra payment should be applied. The Consumer Financial Protection Bureau offers a sample letter.

Minsky recommends making sure to include key borrower information, including full name, Social Security number, birthday, general account number and the identification number of the loan being repaid, which can also be written on the memo line of the check.

Even printing a copy of the loan statement and circling the correct loan for repayment helps, says Minsky.

For those who can't face the idea of writing an extra check every month, "I'd suggest making a big lump sum prepayment once a year, perhaps after you receive your income tax refunds," writes Kantrowitz.

4. Get confirmation: Borrowers should send their check and cover letter though certified mail, says Minsky. And they should keep a copy for their records.

A week or so after sending in the extra payment, check the servicer's website to make sure the check was processed correctly, say experts.

[Know these 11 terms before repaying student loans.]

Once the loan is completely paid off, Minsky suggests requesting a paid in full letter if one isn't granted automatically. And then it's time to celebrate.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

Susannah Snider is an education reporter at U.S. News, covering paying for college and graduate school. You can follow her on Twitter or email her at ssnider@usnews.com.