<p>"In his annual report on the state of student loan servicing, CFPB Student Loan Ombudsman Rohit Chopra writes that some borrowers who try to get ahead of their loans face a variety of snags." ...</p>
<p>Thanks for posting this. My daughter is paying off a grad school loan and considering paying “ahead” every month. Something to look into in advance, I suppose.</p>
<p>We are just putting the extra in a savings account. When we have enough to pay the balance in full…we will. We already paid off a Perkins loan. Next up…the Direct loans.</p>
<p>I don’t want to count on the Servicer to get it right. I know we could save a little in interest, but don’t need the headaches involved in monitoring this with our kids.</p>
<p>We gave our kids loan repayment as a college graduation present. That is why this is of interest to me.</p>
<p>I like your idea thumper1. Thanks.</p>
<p>From what I’ve been told, the loan minimum payment should be one check while any extra should be a separate check noted for “pay toward principle only.” I’ve never had a problem with this when writing separate checks toward minimums/principles/interest-only, etc., even on multiple loans through the same servicer.</p>
<p>“Another issue is that servicers are placing some borrowers into “paid ahead” or “advanced payment” status”</p>
<p>Just lovely. I am glad our mortgage lenders never tried this tack.</p>
<p>I agree with thumpers plan. I wouldn’t want to rely on servicer getting it right nor invest time into monitoring them.</p>
<p>I am paying extra toward mortgage each month via my online bank. One payment with extra included.
I can see that it is applied correctly by logging onto mortgage lenders site. After a few months, I trust it is being applied toward principal.</p>
<p>texaspg, you’re lucky. We made extra payments on our mortgage since its inception. Everything was fine with the original mortgage company, extra payments wend directly to principal, even when it was included as part of a single electronic payment each month. Then the bank was bought out, and Chase took over - what a nightmare. The first year, they started crediting them as early payments (crediting a portion to interests that would accrue until the next payment, resulting in extra interest). We had to tell them to go back and correct it, and started making the extra payment seperately. That worked for about 6 months, and they started doing it again. After that correction, we mailed in the extra payment with a statement to indicate to pay down principal, and again it worked for about 6 months. Each time it took them several days to fix the problem, and at least one time the process triggered a computer generated letter warning that we were 6 months in default. Had they they corrected at just the wrong time, that “default” would have been sent to the credit agencies too! </p>
<p>Musicmom - don’t trust them - check EVERY month.</p>
<p>I can see where this would be a similar problem with student loans. I can also see where you would want to be very specific about sending a separate payment with very explicit instructions if they service more than one loan. They will say crediting as an early payment is a benefit and a service to you, but it is not. It just means they get more of your money. And if they’re given a choice, it’s in their best interest to credit it to the account with the lowest interest rate. That’s fine, if it also has the lowest balance and YOU make the choice to pay it off quickly. But they are capable of doing things correctly, and choose not to - watch them carefully.</p>
<p>We are hoping to get through this process without student loans (why we paid the mortgage off, so the payments can be put aside for tuition instead). Not as much because we don’t want our daughters to have debt, but because we don’t want them to have to deal with the headaches involved with the loans. If we want them to be responsible for more than what they earn in workstudy and summer earnings, they will have a private loan from us.</p>
<p>We paid more than the minimum each month and the servicer withdrew it automatically. Then the servicer was bought by another one, similar to CTScoutmom’s story. Thing was, the automatic payment was not carried over, and I had practically forgotten that it was happening, since we put the entire amount of the loan into daughter’s checking account. Since she was out of the country for the year it was to take to pay the loan, we never even thought about it, until I looked one day and noticed that nothing had been deducted in two months. Since we were not technically behind in the payments, as we had been paying more than the required minimum, there was no notice. So in order to just get the whole thing over with, I paid the whole remainder at one go when this was discovered. As I remember that was difficult to do, as well, and I think I had to write a separate check and then my daughter’s account reimbursed me. You’d think they’d want the money. So glad all that’s behind me now, and I hope it all works out well for those still in the midst…</p>
<p>Oh we definitely DID run into this exact problem with a mortgage lender several years ago. They have indeed thought of it already.</p>
<p>Yes, thanks for this. I watched my mortgage lender do exactly the same thing. Then they tried to charge me fees until I protested. They were kind about it after I complained, but if I didn’t they would have stuck it to me.</p>
<p>Sounds like we were quite lucky! Two separate mortgages and don’t remember any major issue other than the first one changing 3 banks over a 2-3 year period.</p>
<p>That’s a good idea, but the interest rate on the loan is higher than the interest rate that my bank pays on savings. Much higher. So it makes sense to pay off the loan.</p>
<p>"From what I’ve been told, the loan minimum payment should be one check while any extra should be a separate check noted for “pay toward principle only.” "</p>
<p>That is what I did. Worked out fine.</p>
<p>Good idea!</p>
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<p>This is how I did my car payments, and I wrote the “Apply to principal” in large, bold letters. I also attached a sticky to the front of that check with the same message. They could not plausibly claim to have missed it.</p>
<p>I paid my (3-4) student loans ahead with no issues at all (this was a long time ago). We also paid a series of mortgages off early over the span of 10 years (we refinanced a couple times and our loan kept getting sold in the late 80s early 90s). In both cases I used the 2 check method and had no issues at all with one exception … where the bank was applying the extra payments to future months …in this one case they retroactively fixed the problem quickly for the months they messed up after I told them about the mistake (and the second check had “apply to principle” written in the note section … and I had included written instructions with the payments … so it would be tough for them to argue when I called to fix it.)</p>
<p>Paying ahead is a pretty high leverage move … when we had our mortgages when we got to having paid about 20% of the original balance is when over half of the regular payment goes to principle instead of interest. In addition, we planned our extra payments so we paid off our mortgage right before FirstToGo left for college … so we could flip the payment from mortgage to college without affecting our regular cash flow.</p>
<p>Persistence required to pay down the principle during the grace period.</p>
<p>DS recently completed a post undergraduate professional degree and took out a MEFA loan (Massachusetts program). As a graduation present, for the loan grace period, we agreed to match his payments dollar for dollar. However, the lender did not allow automatic checking account deductions during the grace period because. . . the loan was not yet due. It was impossible to make any progress from the online account. . . the loan was not yet due. By phone we received misinformation about where to mail the checks. Once that was straightened out it typically took MEFA 2 to 3 weeks to post payments.</p>
<p>I find this varies greatly by the loan servicer. So far, the servicer for the Parent Plus loan I took out for my D has different lines in their online payment system so you can specify what you want done with the extra funds. Ditto with my car payment- I can select paying months ahead of putting additional amounts toward principle. My mortgage company however, is a whole nother ball game. They are awful. There is no way to pay anything except the actual payment online. To pay anything directly toward principle, you have to send a check and, frankly, I don’t trust that these days. I want immediate proof that I submitted a payment that I can print out. I’ve had them mess up enough times and was thankful I had that proof. I had one time where I mailed a check two weeks before the due date and 4 weeks later, they claimed they still hadn’t received it, but then they cashed that check a day after telling me I was late. Shady.</p>