Help--why did they apply my excess payment this way?

[Trismegistus4]

Hey, I know this forum doesn't get that much traffic, and it's on SDN which specializes in doctor issues, and is not a general finance forum. However, I don't know of a general finance forum where there might be more people around to answer this question. If anyone does know of a better place to post this, please let me know.

I saved up a bunch of extra cash from doing locums earlier this year, and have been wanting to get a few student loans paid off in full. At the same time, I recently opened a new bank account, and had a bunch of cash sitting in my old account, which I was going to use to help pay down loans.

I had a bundle of loans through one servicer, with an outstanding balance of $53,279.75, in IBR. I did not have quite enough cash in my old bank account to pay this off entirely, but between both bank accounts, I did. So I couldn't do the payoff amount in one payment. I scheduled a payment for $50,000, thinking the vast majority of that would go to principal, with only that month's interest being charged as interest. My plan was, as soon as that payment was credited, to pay off the rest of the loan from my new bank account, which I thought would be about $3279.75, maybe a little more because of interest.

However, once the $50,000 payment was credited, I see that only $42,393.72 went to principal, while $7,606.28 went to interest! It's as though they treated it as a series of future payments, and I am now paid ahead! Even though I swear there was no option for this when I scheduled the payment.

Do I have any recourse here? I've sent them an email, because their customer service line is not open on weekends. I plan to place a follow-up call on Monday, but I'd really like to know if there's anything I can do, or if I'm screwed. I could have easily made the payoff amount all as one payment if I'd transferred money between accounts first. I mean, I have the money. According to their website, my payoff amount now is $10892.10. I can't believe this is going to wind up costing me an extra $7600 because I didn't read the fine print!

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[mvenus929]

call them. Say you are interested in paying off in full, and are curious what the breakdown of your last payment was. Often, they'll have a separate payoff amount listed on the bill that is higher than that month's interest plus the principle, but I don't know the specific terms of your loan and how you are paid up until now.

 

[Trismegistus4]

call them. Say you are interested in paying off in full, and are curious what the breakdown of your last payment was. Often, they'll have a separate payoff amount listed on the bill that is higher than that month's interest plus the principle, but I don't know the specific terms of your loan and how you are paid up until now.

Yeah, they do have a separate payoff amount, but unfortunately, with this particular servicer, unlike other ones, that information is not saved in "hard" format anywhere so I can't look back and see what it was. It's only dynamically generated on the website based on my current balance. But I can't imagine that if it had said that much would be going to interest, as I was reviewing the payment info before submitting it, I wouldn't have noticed.

Of course, I'm going to call them on Monday. It's just that this is kind of ruining my weekend. I'm dwelling on the worst-case scenario: I spend an hour on the phone with them, get the runaround, ask to speak to a supervisor, get more runaround, only to eventually be told "not our fault you didn't read the fine print. Sucks to be you."

I'm just wondering whether anyone knows if this has something to do with this concept of "uncapitalized interest" on a loan in IBR, which I don't really understand.

 

[dpmd]

They all do this. It is their way of getting the most money out of you. Not a big deal. You just have to call them and have them reverse the payment then apply it toward any accrued interest and the rest towards principal. had you sent them the entire payoff amount they would probably still just advanced your due date (paying ahead) and hoped you didn't notice. My mortgage lender did this too. Was very easy to get it fixed though.

 

[sazerac]

Yeah I had something similar happen to a mortgage too. The funny thing is, my loan was on an automatic payment system. Since I had paid so many interest payments in advance, they were helpfully going to automatically deduct $0 from my account until the year 2031 and then resume taking monthly withdrawals from my account.

Loan servicers will do ANYTHING to keep a loan active, and hope you won't notice. Good luck with Monday's call. It worked for me.

 

[dpmd]

Considering i was able to get my servicer to correct several months worth of extra payments applied incorrectly, I don't think it will be an issue getting one payment fixed

 

[RangerBob]

I didn't see mentioned in your original post, but how much outstanding interest do you have on your loans? If you're been in IBR since residency the the odds are you have quite a bit of interest accrued, though if you've been an attending for a while it's possible you would've paid that interest off by now. Some lenders state your "loan total" when they just mean total principle, often making you search for how much interest you have on your loans.

If you didn't have ~$7k in interest accrued, then as others stated, the lender probably applied some funds towards future interest payments. Calling them should sort that out. If the representative refuses to reverse the charge and fix it, you ask to talk with their supervisor and go up the food chain until you get someone that can help you.

 

[dpmd]

I didn't see mentioned in your original post, but how much outstanding interest do you have on your loans? If you're been in IBR since residency the the odds are you have quite a bit of interest accrued, though if you've been an attending for a while it's possible you would've paid that interest off by now. Some lenders state your "loan total" when they just mean total principle, often making you search for how much interest you have on your loans.

If you didn't have ~$7k in interest accrued, then as others stated, the lender probably applied some funds towards future interest payments. Calling them should sort that out. If the representative refuses to reverse the charge and fix it, you ask to talk with their supervisor and go up the food chain until you get someone that can help you.

Op mentioned it was the payoff balance he looked at so should have included accrued interest to the day he looked at it.

 

[Trismegistus4]

I didn't see mentioned in your original post, but how much outstanding interest do you have on your loans? If you're been in IBR since residency the the odds are you have quite a bit of interest accrued, though if you've been an attending for a while it's possible you would've paid that interest off by now. Some lenders state your "loan total" when they just mean total principle, often making you search for how much interest you have on your loans.

If you didn't have ~$7k in interest accrued, then as others stated, the lender probably applied some funds towards future interest payments. Calling them should sort that out. If the representative refuses to reverse the charge and fix it, you ask to talk with their supervisor and go up the food chain until you get someone that can help you.

Update: I called them and it seems, unfortunately, that you were correct about the "loan total" thing. The place on their website I had been looking to find my outstanding balance, the payment history page, just lists "Balance," which was $53,279.75. But it turns out that's just the principal. To find your total outstanding amount, you have to go to a different section of the website, which lists "Remaining Balance" and that was $60,775.47. I don't know how I missed it, but maybe I never did check a total payoff amount first. But my payoff amount would have been $60,775.47, or a little more depending on how many days I waited. Unless they are so scummy that they doctor their website.

 

[dpmd]

But i thought they had advanced your due date to make it like you paid ahead. Did they not actually do that?

 

[Trismegistus4]

But i thought they had advanced your due date to make it like you paid ahead. Did they not actually do that?

Yes, it does say I'm paid ahead. I forgot to ask them about that when I called. But unfortunately, I don't see how that can change the facts above. My total balance, with principal plus uncapitalized interest, was in fact $60,775.47.

 

[dpmd]

Yes, it does say I'm paid ahead. I forgot to ask them about that when I called. But unfortunately, I don't see how that can change the facts above. My total balance, with principal plus uncapitalized interest, was in fact $60,775.47.

Because only 7495.72 should have gone to interest meaning they should put the other 110.56 toward principal which isn't a lot but isn't zero (and then next month your will earn 110.56 x your interest rate less interest and so forth)

 

[Trismegistus4]

Because only 7495.72 should have gone to interest meaning they should put the other 110.56 toward principal which isn't a lot but isn't zero (and then next month your will earn 110.56 x your interest rate less interest and so forth)

I don't understand. Can you explain?

 

[dpmd]

I don't understand. Can you explain?

You said the principal balance was 53,279.75 so that subtracted from the total balance they told you about is the unpaid interest 7495.72. But you said they put 7,606.28 towards interest which means they included interest that hasn't yet accrued.

 

[Trismegistus4]

You said the principal balance was 53,279.75 so that subtracted from the total balance they told you about is the unpaid interest 7495.72. But you said they put 7,606.28 towards interest which means they included interest that hasn't yet accrued.

Maybe I'll call them again tomorrow. But the total balance they told me about, $60,775.47, was the total as of November 1st, but I made the payment on 11/18, so 18 days of interest would have accrued, correct?

 

[mvenus929]

Maybe I'll call them again tomorrow. But the total balance they told me about, $60,775.47, was the total as of November 1st, but I made the payment on 11/18, so 18 days of interest would have accrued, correct?

Yes. And depending on your interest rate, that could absolutely be roughly $100.

 

[dpmd]

Maybe I'll call them again tomorrow. But the total balance they told me about, $60,775.47, was the total as of November 1st, but I made the payment on 11/18, so 18 days of interest would have accrued, correct?

Yes, but then your due date would not have been advanced past December.