If you’re one of the over 40 million Americans with massive student loan debt, you likely know the paperwork that comes with it. And one helpful document you may need as you pay off your student loans is the loan payoff letter.
Also, if you want to refinance your debt or get a mortgage, lending firms will most likely ask you for your remaining loan balance statement. This statement is the student loan payoff letter, also called the payoff statement.
You’ll need it to acquire a credit or loan for massive purchases. We’ll explore all the relevant information you need to know about the loan payoff letter to make the repayment journey less burdensome.
What Is A Loan Payoff Letter?
The student loan payoff letter sounds like a document that proves you’ve paid your debts in full. But that’s not the case. Instead, it’s a document generated by your loan servicer which states:
- Your monthly payments,
- Current student loan balance, and
- Other account information.
Keep in mind a few things. First, this document doesn’t matter if you have federal or private student loans. Second, the payoff letter isn’t the same as a monthly statement.
Instead, loan servicers use it as a tool to know how you manage debt on your existing student loan. It also includes interest costs in the future based on when you plan to finish your payment.
Generally, payoff letters have a time limit (also called good-through rate) in which the amount of interest due on your student loan would change. However, you may need the payoff letter when, say, you’re still paying off your student loans and want to apply for a mortgage.
The document plays a significant role in determining your debt-to-income ratio. Numerous lenders look at these DTIs to know whether you can afford potential future payments on your loan.
It’s vital to know that a massive student loan balance could prevent you from getting loan options. So it’s better to pay off your debt as much as you can.
Information Included In A Student Loan Payoff Letter
Generally, the document will include:
Account number. If you have several account numbers, it’ll be documented as well
10-day payoff amount. Some loan lenders may instead choose a 15- or 30-day payoff amount.
Payoff instructions. The document includes in-depth instructions about how to repay your student loans.
Loan details. Your loans, including their payoff amounts, will be documented in the letter.
Remember that you only request the payoff letter when you want to pay off your student debt yourself. If you’re selling your home or refinancing, your company or new servicer will likely make the payoff letter request in your stead.
Why Do You Need A Student Loan Payoff Letter?
Now, you know what the payoff letter is. Let’s find out why you may need one.
Refinancing Your Student Loans
You may refinance your student loans to save money and take control of your debt. It can be a smart move. And that’s because you basically replace your current student loans and replace them with new ones, often at a lower interest rate.
However, refinancing comes with its drawbacks too. That said, to complete the refinancing process, generally, you’ll have to contact your current lenders to request your student loan payoff letter.
Getting A Mortgage
When you want to purchase a home but need a mortgage to finance the purchase, your student debt can complicate the process. It can also limit your options. So it’s not a surprise that 83% of non-homeowners said student debt was a factor in delaying them from buying a home.
Your debt-to-income ratio plays a significant role when you want to purchase a home. The DTI ratio calculates your total debts each month compared to your gross income.
Loan lenders look at the DTI ratio to know whether you can afford the monthly payments if they give you a mortgage. Therefore, when you use your student loans to apply for a mortgage, the servicers may ask you to submit your payoff verification statement or payoff letter.
Then, they’ll use the information to calculate your DTI, which will determine whether they should give you the mortgage or not. And if they will, the lenders will determine the interest rate based on the information in the letter.
Repaying Your Student Loans
If you want to pay off your total student loan balance, it’s ideal to request a loan payoff letter from your loan lender. And that’s because your monthly statement won’t necessarily include all the fees and interest you owe. But, unfortunately, that won’t help much if you want to pay off the remaining debt.
Remember, when your servicer issues the payoff letter, the amount on the document is only valid for a specific time frame. So if you pay the amount listed in the document after that time frame expires, you may make additional payments later when the interest charged is included.
It can be pretty frustrating to think you’ve paid the amount in full only to find out you have more payments to make. What’s worse, if you don’t know that you still have debts to pay, your loans could end up delinquent.
How To Get A Student Loan Payoff Letter
Getting a payoff statement is relatively straightforward. All you have to do is get in touch with your student loan servicer. If you have several loan lenders, you have to contact them individually for the payoff letter.
However, keep in mind that the details may vary depending on the company. For example, numerous online lenders allow you to request a verification statement on their site. However, others may require that you call or try a different contact method.
Send them to the lenders who requested them when you get the letter. And also, include your refinancing lender or mortgage company.
Below, you’ll find the information you need to get a payoff verification statement from the most common loan lenders: Great Lakes, American Education Services, and FedLoan Servicing.
1. Great Lakes
- Go to MyGreatLakes.org and sign in to your account
- Choose “Payments” from the top navigation bar.
- Select “Manage Payments” from the drop-down menu.
- Choose “Calculate Payment Amount” from the drop-down menu.
- Select the appropriate payoff date in the “Choose Payoff Date” section.
- Your 30-day payback estimate will appear on the site.
- You can save and print the quote.
2. American Education Services
- Sign in at AESSuccess.org.
- Select “Payments and Billing” from the “Account Summary” menu.
- Select “Loan Payoff” from the menu on the left.
- Enter the date you wish the loan to be paid off.
- Select “Select a Payoff Quote” from the drop-down menu.
- You can print the quote or save it.
3. FedLoan Servicing
- Go to MyFedLoan.org and sign in.
- Click “Payments & Billing” under “Account Summary.”
- On the left, select “Loan Payoff.”
- Choose the loan for which you’d like a payoff estimate.
- Select a date.
- Select “Request A Payoff Amount” from the drop-down menu.
- You can save each page or print it.
Potential Fees Associated With A Loan Payoff Letter
If you want to clear off your student loans fast, you may run into various charges. Let’s go through them:
You may have to pay processing fees to repay your student debts. Processing fees are what your servicer charges you for closing out the loan amount and handling the payment.
When you request a student loan payoff letter, be prepared to pay a modest fee. However, the services are free in some cases. The cost might hinge on how you get the letter, so you’ll have to find out from their customer service for more details.
Even though prepayment penalties are rare, some loans still have them.
Alternatives To Payoff Verification Statement
Another way to request payoff letters is to ask your servicer to give you the payoff quotes verbally. However, that means you won’t have any official and legally binding documents. But you’ll get an idea of how much you’ll need to pay off your debts.
It’s even possible to move forward with your payment through this method. But if you get the wrong information, there’ll be no recourse for you. So it’s quite risky to use a verbal payoff quote.
How To Develop A Payoff Statement
The payoff letter should include the student loan terms. That helps the company receiving the payoff statement know the factors used to calculate the payoff to see if it’s accurate. Servicers usually calculate the payoff for 30 days.
Here are the steps involved in creating a payoff statement.
1. Gather All the Terms And Other Relevant Information
You’ll need all the terms and other essential information. A payoff letter should include the address and name of the servicer that prepared the statement. The letter should also address the lender that requested the payoff.
In addition, it has to include the loan number, the customer’s name, and the loan terms, including the interest rate and the balance.
2. Complete The Letter Body
The body will specify the payoff figure, including its duration before it expires. The letter should also include a per diem figure. You can use that to calculate the new payoff figure if the payoff due date expires.
Through the per diem figure, you can add how much interest accrues each day before the original payoff date expires. The payoff statement should also specify what date interest has been paid up to.
3. Calculate The Payoff
Let’s take an example of how to calculate a loan payoff. Let’s say you have a loan of $15,000 at 8% interest. And the company received the payment 25 days ago. So here’s what you do. First, divide 8% (.08) by 360 (because the lenders calculate many loans on a 360-day year).
Multiply the result by 25 (that’s the number of days from the most recent payment). Then multiply the result by 15,000, which is the loan balance. The amount of interest becomes $83.33 for the 25 days. So when you add this figure to the $15,000, you get a payoff balance of $15,083.33.
4. Include A Per Diem
The per diem refers to the amount of interest that accumulates each day. For example, take the interest of $83.33, then divide it by 25 for a per diem figure. When you do that, you’ll get $3.33.
5. Provide A Breakdown
The payoff statement should also include a breakdown of any fees, principal balance, and interest due. It should also have a detailed explanation of per diem charges if the check is received after the due date.
The statement should specify to whom the check should be payable.
Ways To Pay Off Your Student Loans Faster
A student loan payoff letter can help you develop a repayment plan and budget when you plan to pay off your student debts. And that’s because it gives you a clear idea of how much you exactly owe.
If you review your current balance, you won’t get an accurate picture because it includes all the fees and accrued interest via the payoff date. Now, after you get your payoff statement, you can take your time to pay off your student loans faster.
Here are some ways to consider.
1. Consider Consolidation And Refinancing
In some instances, paying off your student loans can be more manageable if you consolidate or refinance them. By doing that, you’re more likely to get a lower interest rate and also streamline your loans into a single monthly payment.
However, it’s advisable to review the loan terms before you refinance or consolidate. That’s because you may get a better interest rate, but it will take you a long time to pay off your loans.
Also, you’ll lose valuable federal benefits such as student loan forgiveness and other repayment programs. But this occurs when you refinance or consolidate your student loans into private ones. So take your time and do your research.
A loan payoff letter may get things started, but you may need an expert’s opinion on which route to take.
2. Consider Bi-Weekly Payments
Another option is to pay half of your monthly loan payments every two weeks instead of making total payments each month. This move helps you save money on interest and enables you to pay off your student loan faster because you make one extra payment per year.
3. Sign Up For Automatic Payments
Numerous loan servicers give you an interest rate discount when you register for automatic payments. So you can lower your interest rate and direct your money towards your principal. And you don’t get to miss a payment.
How To Manage Your Student Loans
One crucial factor in determining your loan payoff strategy is to find out when the first payment is due. You’ll get this information from the loan servicer.
If you have a federal student loan, there is a set period after you leave school, drop below half-time enrollment or graduate before you start making your monthly payments. That is the grace period, and it could last from six to nine months, depending on the type of federal student loan.
Most people get tempted to believe that the grace period is the time to push more money into what they need or want. Instead, however, you should consider saving up as much as possible and direct them towards your repayment.
The U.S. Education Department pays the interest on Direct Subsidized Loans while you’re in school for at least half-time. This occurs during the grace period or deferment period, making the loan repayment less burdensome.
However, if you have Direct Unsubsidized Loans, you’ll be responsible for paying interest during the life of the loan. This is because the interests accrue the moment the government disburses the loans.
If you want to pay off your student loans quickly, you may want to get a side job, check if there’s a repayment package at your company, or pay off other debts during the grace period.
The student loan payoff letter will be necessary when you plan to refinance your loans, refinance your debt, or get a mortgage. Of course, no one enjoys repaying student loans, but there are ways to make them less burdensome. With the loan payoff letter, you can know the exact details of your student loans. That can give you the correct information to faster pay off your student loans. We’ve included several ways to manage your student loans and pay them off faster. Go through them and choose the ones that work for you.