PSLF paid ahead loan status

[nexus73]

I'm curious if anyone knows more about this. My job pays $20,000 to my student loans each year for 4 years, as part of my contract. The payment goes directly to my loan servicer and the money is counted as regular income for taxes. I am working towards PSLF with about 4 years of payments done right now.

There is possibly a problem with this because the $20,000 goes in as a one time payment and pays the account ahead for several months. I've heard conflicting information about being "paid ahead." One is that while paid ahead, any payments made do not count toward PSLF. However, I called the loan servicer yesterday and she said as long as I continued making auto debit payments each month, they would count towards PSLF, even though the account is technically paid ahead. I'm not sure how to verify any of this.

Sorry if this is confusing.

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[mvenus929]

If you're paid ahead, will you have an auto debit each month? My auto debit is based on my amount due each month, so if I didn't have a balance due, I imagine I wouldn't get anything taken out of my checking account each month.

Is there a way to write to your loan servicer and say 'hey, there is going to be this amount of money coming your way... I want to first pay off excess interest, then principle, but I don't want it to count against future payments?'

 

[RangerBob]

Is there a way to write to your loan servicer and say 'hey, there is going to be this amount of money coming your way... I want to first pay off excess interest, then principle, but I don't want it to count against future payments?'

This is exactly what the OP would need to do. I believe FedLoan gives the option to specify this online ("make an extra payment" or something like that, and you specify the loan, etc.) Otherwise paying $20k now just pays off your future monthly payments (but only the one payment would count towards PSLF), and nothing would be auto-debited because the OP wouldn't actually have a payment to make.

OP--if it isn't clear or easy to do online, call your loan servicer, and specify you want to make a one-time additional payment on your highest interest loan, with all of it going to the outstanding interest and then to the principle.

 

[keifernny2]

Can you change your contract and have them pay you instead? It won't cost the hospital anything and eliminate the problem.


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[White Coat Money]

I've dealt with this myself before. All extra payments aside from your monthly required payments do not count for PSLF. In essence you are only allowed 1 qualifying PSLF payment per month - the shortest time you can qualify for PSLF will be 10 years.

There shouldn't be such a thing as "paid ahead" when it comes to your student loans. They will continue to debit your scheduled monthly payments until it's all paid off.

Source: Personal experience, made extra payments by accident and they didn't count toward the 120 payments required for PSLF.

 

[mvenus929]

I've dealt with this myself before. All extra payments aside from your monthly required payments do not count for PSLF. In essence you are only allowed 1 qualifying PSLF payment per month - the shortest time you can qualify for PSLF will be 10 years.

There shouldn't be such a thing as "paid ahead" when it comes to your student loans. They will continue to debit your scheduled monthly payments until it's all paid off.

Source: Personal experience, made extra payments by accident and they didn't count toward the 120 payments required for PSLF.

I don't think that was the concern the OP was having... Rather, he wanted to make sure the one time payment he made would not pay ahead on his account and thus miss counting several payments for several months. This often happens with loans-- if you pay more than the minimum, they may apply the excess to your future payments, rather than using it to knock down your interest, because they still want you to pay all that interest.

 

[White Coat Money]

I don't think that was the concern the OP was having... Rather, he wanted to make sure the one time payment he made would not pay ahead on his account and thus miss counting several payments for several months. This often happens with loans-- if you pay more than the minimum, they may apply the excess to your future payments, rather than using it to knock down your interest, because they still want you to pay all that interest.

Sorry if my initial reply was unclear. I called Fedloan just to be sure.

• If the OP has direct debit setup, any extra payments will not apply to future payments, rather it will be applied to your outstanding interest and fees before the principal. You can also contact your loan servicer to apply the payment differently (e.g. 100% toward principal).

• If the OP does not have direct debit setup and makes payments on a monthly basis, then the payment will default to paying the account ahead unless you direct your loan servicer to apply the payment differently.

I would recommend OP to

1. See if you can get the $20,000 to come to you directly instead of your loan servicer. If not,
2. Set up direct debit and direct your loan servicer to apply any extra payment toward your interest/principal in your preference.

 

[nexus73]

Great replies, thanks. So, if I have direct debit setup the $20,000 will not count for pslf, but the continuing auto debit payments will?

 

[RangerBob]

Great replies, thanks. So, if I have direct debit setup the $20,000 will not count for pslf, but the continuing auto debit payments will?

I would contact your servicer. FedLoan has contradicted themselves often with me (it all depends on which customer service rep you get, and the reps really don't fully understand the loans anyway).

In general when paying anything over the minimum on a loan (for any loan--car loans, mortgage, etc.) the extra payment will be first applied to any outstanding feeds, then to future payments. Maybe FedLoan does it differently, but all you need to do is be clear to them you want that $20k to NOT go towards future payments and you want it to be applied to x, y, and z loans (interest gets paid first, then principle, so apply that $20k to the loan with the highest interest rate, then pay off the next highest, and so on). It would be preferable if your company gave you the money, because then not only do you have control to make it a one-time payment (should be easy to do online), but you can also keep a couple grand to pay the taxes on it you'll have to pay on it regardless--though I think there are some bills to possibly allow employers to give X amount in loan payoffs tax-free. Obviously if the company states you have to apply all $20k to your loans then you should do that, but just remember then to budget an extra ~$5-7k for taxes on that, depending on your tax rate.

You really need to be on top of your servicer about these sort of things. They messed up my consolidation and it took me four months and the connection of my medical school financial aid officer being friends with a higher up at FedLoan to finally get someone who knew how to do math to review my consolidation loan and see they calculated my interest rate wrong (it was a unique scenario that I was in, but I was unable to explain fairly basic math to any of the customer service reps or their supervisors."

One word of advice: whenever you talk with your servicer about something important (like making sure that extra $20k goes towards outstanding interest and principle on specific loans, and not towards future payments), write down the date you called, who you spoke with, and what they said. And you can always ask them to document the specifics too, as they have a file on you! That way if something doesn't go right and the money gets applied to future payments instead, you can call back and reference that original conversation.

 

[White Coat Money]

Great replies, thanks. So, if I have direct debit setup the $20,000 will not count for pslf, but the continuing auto debit payments will?

Yes, that's my personal experience with extra payments. I made an extra payment but they continued to debit my monthly auto debit. When I checked later, only the monthly auto debit qualified for the 120 PSLF payments. When I called in to ask why, I was told only 1 payment per month will count against the 120 required payments for PSLF. But like @RangerBob said, it might be worthwhile to check yourself.

FYI, here's a useful link from Fedloan where they discuss "Paying Ahead" - including a section where they talk about PSLF specifically. Looks like you can have them permanently remove "paid ahead" status from your account. https://myfedloan.org/make-a-payment/paying-ahead.shtml