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Old 04-20-2011, 01:55 PM
 
660 posts, read 547,423 times
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Hi All, I have a question, that probably boils down to simple mathematics, and yet it is blowing my mind!
I have a student loan with a $17,000 balance, at a 4.75% fixed interest rate. My minimum payment a month is $145. For the past few months, I have been paying $200.
After looking over my statement, I noticed that the time my NEXT payment is due keeps getting pushed farther and farther out, infact, my next payment is not due for a year now. Also, it seems that the extra $55 dollar a month I'm paying keeps getting dumped onto interest. I don't think the $55 dollars is going to PRINCIPAL reduction like I had intended. Is this possible? Am I somehow prepaying interest?
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Old 04-20-2011, 02:11 PM
 
Location: West Orange, NJ
12,076 posts, read 9,370,897 times
Reputation: 3331
Quote:
Originally Posted by TimeMachine View Post
Hi All, I have a question, that probably boils down to simple mathematics, and yet it is blowing my mind!
I have a student loan with a $17,000 balance, at a 4.75% fixed interest rate. My minimum payment a month is $145. For the past few months, I have been paying $200.
After looking over my statement, I noticed that the time my NEXT payment is due keeps getting pushed farther and farther out, infact, my next payment is not due for a year now. Also, it seems that the extra $55 dollar a month I'm paying keeps getting dumped onto interest. I don't think the $55 dollars is going to PRINCIPAL reduction like I had intended. Is this possible? Am I somehow prepaying interest?
many servicors operate this way. you sending in extra money is automatically applied to a FUTURE payment. so, you are in essence making next month's payment ahead of time. you have to call in (assuming you are submitting your payment online) and tell them you want the $55 extra applied to principle, not future payments.

i have my loans through sallie mae, and every so often i send in an extra payment with a letter instructing them to apply it to loan #X principle.

it's a PITA, but that's the reasoning. look at the bright side, you won't be late ever, since you've basically prepaid a few months ahead by now.

the other thing Sallie Mae does is every 3 months, they adjust my monthly payment amount to keep me on the 10 year schedule. so my payment might drop by 20 cents per month, so i have to add that 20 cents into my extra payment amount to continue getting ahead of schedule.

again, PITA, but that's just how it works.

good luck!
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Old 04-20-2011, 04:49 PM
 
2,151 posts, read 3,209,150 times
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Read your loan agreement and see what it says. That's the only way to really know what happens when you overpay.
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Old 04-20-2011, 04:56 PM
 
8,346 posts, read 11,409,318 times
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You need to specifically state that you want the extra to go against the principal balance. You'll probably need to call in and pay by phone to do so each month- that's what I have to do so I just wait until I have a chunk of money set aside and then call in my $1,000 extra payment.
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Old 04-20-2011, 05:43 PM
 
Location: Boise, ID
5,565 posts, read 10,898,943 times
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You should make sure you don't have any prepayment penalties, too. I think student loans usually do not, but it is smart to check.
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Old 04-20-2011, 05:49 PM
 
Location: Darlington, SC
2,447 posts, read 3,590,375 times
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It's not going towards interest per se, but, is going towards your minimum monthly payments.

My Car is the same way.. I currently do not have a payment due until the end of July.. I keep making the payments, as I like seeing that date get further and further out.
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Old 04-20-2011, 06:37 PM
 
3,782 posts, read 4,686,140 times
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Quote:
Originally Posted by bradykp View Post
many servicors operate this way. you sending in extra money is automatically applied to a FUTURE payment. so, you are in essence making next month's payment ahead of time. you have to call in (assuming you are submitting your payment online) and tell them you want the $55 extra applied to principle, not future payments.

i have my loans through sallie mae, and every so often i send in an extra payment with a letter instructing them to apply it to loan #X principle.

it's a PITA, but that's the reasoning. look at the bright side, you won't be late ever, since you've basically prepaid a few months ahead by now.

the other thing Sallie Mae does is every 3 months, they adjust my monthly payment amount to keep me on the 10 year schedule. so my payment might drop by 20 cents per month, so i have to add that 20 cents into my extra payment amount to continue getting ahead of schedule.

again, PITA, but that's just how it works.

good luck!
I have sallie mae as well and I believe you are incorrect. If you pay 3 months payment this month, they may advance your payment 3 months however that does not mean principle balance does not go down. I paid a $1000 payment a couple days ago and instructed them to advance my payment however many months that was. However the balance("principle balance") on my loan today is $1000 less than it was before.

These are the two choices I get when I want to pay more than the minimum payment.



"Pre-Paying Principal- I do not wish to have my next payment due date advanced by the number of additional whole payments made. I understand that funds paid in addition to my present amount due will first be applied to satisfy any outstanding fees and interest and any remaining funds will be applied to my principal balance. I will continue to make payments as scheduled each month.

Paying in Advance - I would like my next payment due date advanced by the number of additional whole payments made. I understand that funds paid in addition to my present amount due will first be applied to satisfy any outstanding fees and interest and any remaining funds will be applied to my principal balance. While I may not have to make my next monthly payment amount, interest will still accrue on my outstanding principal balance."

The bolded is my point, I do not see any disadvantage to paying and have them advance your payment. Future interest is not outstanding.
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Old 04-20-2011, 07:13 PM
 
Location: San Jose, CA
987 posts, read 1,643,371 times
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Quote:
Originally Posted by jdm2008 View Post
I have sallie mae as well and I believe you are incorrect. If you pay 3 months payment this month, they may advance your payment 3 months however that does not mean principle balance does not go down. I paid a $1000 payment a couple days ago and instructed them to advance my payment however many months that was. However the balance("principle balance") on my loan today is $1000 less than it was before.

These are the two choices I get when I want to pay more than the minimum payment.



"Pre-Paying Principal- I do not wish to have my next payment due date advanced by the number of additional whole payments made. I understand that funds paid in addition to my present amount due will first be applied to satisfy any outstanding fees and interest and any remaining funds will be applied to my principal balance. I will continue to make payments as scheduled each month.

Paying in Advance - I would like my next payment due date advanced by the number of additional whole payments made. I understand that funds paid in addition to my present amount due will first be applied to satisfy any outstanding fees and interest and any remaining funds will be applied to my principal balance. While I may not have to make my next monthly payment amount, interest will still accrue on my outstanding principal balance."

The bolded is my point, I do not see any disadvantage to paying and have them advance your payment. Future interest is not outstanding.

I have to say that the way my loan works when I have a lot of money to pay down my loan, and I pay a few grand toward the loan in "Loan Transaction History" it says some thing like:

Amount applied toward principal -2,992.95
Amount applied to interest $-7.05

And the interest that accrues goes down relative to the balance it says, so eventhough I have always chosen to push back my payment dates it has reduced my principal, but it might be that since these are consolidated Stafford Loans from 2005 that those were the terms from then, and new loans are different.
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Old 04-20-2011, 07:38 PM
 
Location: San Francisco, CA
7,817 posts, read 4,527,967 times
Reputation: 6428
Quote:
Originally Posted by TimeMachine View Post
Hi All, I have a question, that probably boils down to simple mathematics, and yet it is blowing my mind!
I have a student loan with a $17,000 balance, at a 4.75% fixed interest rate. My minimum payment a month is $145. For the past few months, I have been paying $200.
After looking over my statement, I noticed that the time my NEXT payment is due keeps getting pushed farther and farther out, infact, my next payment is not due for a year now. Also, it seems that the extra $55 dollar a month I'm paying keeps getting dumped onto interest. I don't think the $55 dollars is going to PRINCIPAL reduction like I had intended. Is this possible? Am I somehow prepaying interest?
Did you accrue interest? Generally, interest is accrued as the loan is active even before repayment begins - and especially if you defer your loans for a period of time. A lot of the money you then repay is going to go toward that accumulated interest balance, just as occurs with your standard monthly payments.
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Old 04-21-2011, 09:15 AM
 
Location: West Orange, NJ
12,076 posts, read 9,370,897 times
Reputation: 3331
Quote:
Originally Posted by jdm2008 View Post
I have sallie mae as well and I believe you are incorrect. If you pay 3 months payment this month, they may advance your payment 3 months however that does not mean principle balance does not go down. I paid a $1000 payment a couple days ago and instructed them to advance my payment however many months that was. However the balance("principle balance") on my loan today is $1000 less than it was before.

These are the two choices I get when I want to pay more than the minimum payment.



"Pre-Paying Principal- I do not wish to have my next payment due date advanced by the number of additional whole payments made. I understand that funds paid in addition to my present amount due will first be applied to satisfy any outstanding fees and interest and any remaining funds will be applied to my principal balance. I will continue to make payments as scheduled each month.

Paying in Advance - I would like my next payment due date advanced by the number of additional whole payments made. I understand that funds paid in addition to my present amount due will first be applied to satisfy any outstanding fees and interest and any remaining funds will be applied to my principal balance. While I may not have to make my next monthly payment amount, interest will still accrue on my outstanding principal balance."

The bolded is my point, I do not see any disadvantage to paying and have them advance your payment. Future interest is not outstanding.
the principle balance goes down, but you are also prepaying interest.

the way they explained it to me on the phone was "paying in advance" is making my next months $343 payment. of which, maybe $300 goes to principle, and $43 goes to interest.

i'll call them today to check again, but that's my understanding from the mouth of a customer service agent...because i had the exact same problem the OP had when i made my first 2 "extra" payments. it pushed my due date forward 2 months, and it didn't reduce my principle by 100% of the extra payment.
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