Dirty Tricks Department: Where is Your Student Loan Payment Going?

You scrimp, you save, you pay extra every month to bring down your loan balance, but your student loan payment may not be applied the way that you think. It seems that loan servicers can line their pockets with your money and not even tell you what they’re doing. All that painstaking budgeting that you believe is paying down your balance faster may not be applied to principal (the actual amount of the loans) but to the interest tacked on. Additionally, the servicer may lowered your monthly payments but extend the term of your loan – making big bucks on the interest they charge over the term of repayment. A recent blog from the Consumer Financial Protection Bureau’s Seth Frotman highlighted the practice.

If you are one of the people who consistently overpays on your loans, thinking that you are paying them off more quickly, I’m willing to bet that there is steam coming out of your ears right now. Paying off the principle of your loan is a way to save money on interest fees over the long term, but only if that extra sum is applied to the principal. You also have every right to pay off your loan faster without being penalized by your loan servicer in the form of additional fees. You will need to check your statement in order to determine how your loan servicer has applied the extra cash.

If you determine that they have lowered your payments and extended your repayment term, you will need to communicate with your student loan servicer that this is not a satisfactory situation. You will need to tell them to raise your rates, and shorten your term, but you can also specify to which loan principal the extra payments should apply. It helps to communicate in writing or via email, and keep a record of your communications with your loan servicer. The Consumer Financial Protection Bureau even supplies a sample letter that you can use to communicate your wishes unequivocally to your servicer. If you communicate your wishes clearly and the servicers still does not abide by your wishes, you may file a complaint against them. Nothing about directing your payments or extra payments should be a matter of contention.

Getting your student loans in order helps you to get your life in order. By paying down principal and had a schedule, you save on interest, but this cuts into the profitability of the loan for the servicer. Therefore, they may try to pressure you into keeping lower payments over a longer term. When you and your servicer are in a dispute, it helps to have an attorney on your side. At Van Horn Law Group, we specialize in getting our clients back on track no matter what their situation is. We offer a free initial consultation at our Fort Lauderdale or West Palm Beach offices, so come in and find out how we can tame your student loans and your student loan servicer.