So now you've gotten a job, and are paying back your student loans, but you notice, not all loans are equal.
Loan1: $3000 @ 1.5%
Loan2: $4000 @ 4.0%
Loan3: $5000 @ 6.0%
Loan4: $1000 @ 8.0%
example: several loans, at varying interest rates. This example averages to $13,000 @ 4.5%
When you make payments, which loan would you like to choose to pay off first. That is not really an option available to the paybacker. If you do nothing, but make your payments, say a $1000 payment, then 1000/4 = $250 gets applied to each loan. Or, the better way would be to apply all $1000, to your most expensive loan, to knock it away.
Applying to most expensive loan: 12,000 @ 4.20%
Applying to all loans: 12,000 @ 4.46%
And thats one easy way how being smart, makes you save money. But to do this with student loans, it quite difficult and time consuming. This is a natural way to design a repayment system when you're the lender, but after every payment you make (online), you have to then send an email saying, hey, I want this to be applied to my most expensive loan. To which they [The Direct Loan Servicing Center] reply, um, we can't really do that, but we'll do something, and its going to take 7-10 days regardless.
To those who believe that the free market will have the solution, because I could use some innovation, and competition, hopefully someone with a decent enough website so I can make targeted payments.