Extra payments on loan - Question about how they're applied

[Anonymous]

I know there was a thread floating around a while ago with Revelate and a few others discussing how various entities applied the over payment when you pay more than your loan payment. Now I can't find it. (note: I'm getting sick and took some cold med, I can already feel myself rambling and feel I should know the question without asking. Please ignore any effects.) 

I'm FINALLY paying extra payments on my student loans. I want mine to be paid off around the same time as DH's and then Woo Hoo! We've got a few years to go yet. My loan is with Sofi, recently switched to Mohela for servicing. The payment is being applied to the following month's payment. So I owe $xxx.xx less towards next month's payment in the amount that I over paid this month. 

If they apply it that way vs. not showing it as towards next month's payment, will it effect the interest I owe the same way, one way or the other? Should I be happy that if something bad were to happen and I couldn't make a payment that I'm paid ahead? Or is it costing me with them not applying it right away to principal. I could ask them, but I'll ask here first. 

Thanks. 

[thelethargicage]

They're being slick by applying it toward next month's minimum payment instead of principal. That way it doesn't lower the amount of interest charged. You have to explicitly tell them you want extra payments applied directly to principal in the current month.

[Anonymous]

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@thelethargicage wrote:
They're being slick by applying it toward next month's minimum payment instead of principal. That way it doesn't lower the amount of interest charged. You have to explicitly tell them you want extra payments applied directly to principal in the current month.

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Ok. Thanks. That's what I had in the back of my mind, but I couldn't process today. 

[Anonymous]

Wait...this is what it says on the site. This isn't what they did, right? What it says is what I want, but not what they did. I paid an extra $260 in with my regular payment and it lowered my December payment by $260. What they did is what is described in the 'for additional payments made separately' section. Right? 

• How will my payments be applied if I send more than my payment amount or multiple payments?

  Any additional amount paid with your monthly payment will be applied towards the principal of your loan. For additional payments made separately from your monthly payment, we will apply to interest due from the date of the last payment and then apply towards the principal of your loan.

[iheartwings]

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@Anonymous wrote:

Wait...this is what it says on the site. This isn't what they did, right? What it says is what I want, but not what they did. I paid an extra $260 in with my regular payment and it lowered my December payment by $260. What they did is what is described in the 'for additional payments made separately' section. Right? 

• How will my payments be applied if I send more than my payment amount or multiple payments?

  Any additional amount paid with your monthly payment will be applied towards the principal of your loan. For additional payments made separately from your monthly payment, we will apply to interest due from the date of the last payment and then apply towards the principal of your loan.

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Yes, and no. When you provide an additional payment, they will first apply to the interest since your last payment, and then your principal. That part is very true. 

They will advance your due date if you don't tell them to do so. This is common among many servicers and is slightly above trickery to get you to pay more in interest. Please remember that on student loans, interest compounds daily. Therefore, it is in your best interest NOT TO ADVANCE YOUR DUE DATE. (My servicer is Navient, btw. I also had loans with AES and younomics - this was common practice amont all of them.)

To take advantage of my interest-rate discount of 0.25%, I am enrolled in auto-debit. As a result, my payment due comes out of my account on the 7th, regardless of whether or not I allow them to advance the due date with an additional payment. Even though this is the case, if I don't send instructions not to advance the due date, they do anyways.

Knowing how student loan servicers game the system is part of the trick. The CFPB has acknowledged that servicers make it difficult to pay down your loans. 

HTH.