What Lindsay and LaMarcus have in common
Lindsay and LaMarcus both went to college before service. They both accumulated $15,000 in student loan debt and have payments of $100/month scheduled to start shortly after they finish their service.

How Lindsay and LaMarcus differ
In college, Lindsay couldn't stand the thought of taking out student loans. She borrowed the least possible amount and covered her other experiences working 25 hours/week. She wants her student loan debt to disappear, planning to throw her education award at the beast.

LaMarcus is less concerned with his student loan than with what he's going to do over the next few years. His AmeriCorps service opened up several new options for him. At the moment, he's considering spending a year or two in Costa Rica doing volunteer environmental work. What he's not looking forward to is making his student loan payments.

What are their options?
Typically, if you send your Education Award funds without instructions to lenders like Sallie Mae, they will automatically pay ahead as many of your loan payments as your education award will cover.

What this means is that if your payments are $100 a month and you send your lender roughly $4,800 from your Education Award account, Sallie Mae* will advance you 47 payments, and you won't have to make another payment for the next four years. This arrangement works out great for someone like LaMarcus who would like to keep his student loan out of sight and mind for as long as possible. (*NOTE: Policies vary, even within the same company!)

The downside is that after the four years, LaMarcus' payments will still be $100 a month, and his student loan balance will be in the $12,500 range. The reason his education award didn't reduce his loan by a greater amount is that in advancing his payments, his lump sum paid interest first and then principal.

Here is another option: If you submit your education award voucher to a lender with a request in writing, the lender can potentially apply your lump sum payment toward the principal rather than advancing payments.

This option works best for someone like Lindsay. With a roughly $5,000 education award, she can reduce her loan balance by one-third to around $10,300. Her new monthly payment will be roughly $60. As long as she makes regular payments, she will pay far less over the life of the loan than someone who has taken the payment-advance option.

The downside to paying down the principal with your education award is that you don't get a break from making payments. Once your term of service ends, you will need to start making payments.

So what's the process of moving forward?
If you want to be like LaMarcus, before you send your award funds to your lender, make a request in writing that they advance payments for you with your lump sum.

If you want to be like Lindsay, make a request in writing to your lender asking to apply your lump sum toward principal. Do this before you send the funds!

You can also ask your lender to make advance payments for a specified length of time (for example, a year) and apply the rest toward principal.

WARNING: Loan companies have varying policies, and there is always a chance these options will not work for you. However, don't let this deter you from asking questions of your lender and pursuing options. Many past AmeriCorps members have had great success in paying their loans in the way that works best for them.


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