Prepayment

A prepayment is an amount in excess of the amount due on a loan. If borrowers have more than one Direct Loan, they must specify which loan they are prepaying. Like all other Direct Loan payments, a prepayment will first be applied to any outstanding fees and charges, next to outstanding interest, and then to the principal balance of the loan(s). There is never a penalty for prepaying principal or interest on Direct Loan Program loans.