Author Topic: Student Loan Interest Accruing too quickly?  (Read 3409 times)

RockytopinDC

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Student Loan Interest Accruing too quickly?
« on: August 20, 2017, 08:53:28 PM »
Hello,

I was hoping someone may be able to provide me some basic advice. Our household has been  paying off student loans so far this year since April with about half of our $ 80K paid off so far and more to come! But I've noticed that when tracking our balance on personal capital, the total loan debt is increasing quickly. (I know it has to go up...but it seems too fast?)

Now I am under the impression that our loans (as described on our servicer's website) are compounded daily. Our aggregate interest rate is ~6%. However, with a current balance of $ 44,302.21 we are being charged $13 a day in interest. I don't think I am doing the math wrong but correct me if I am.  It seems our daily interest at 6% should be closer to $ 7.50 per day. Is there any way that this should be the case? Where am I confused? I find it hard to believe that we would really be charged interest in excess of our agreed upon rate so I thought of no better place to look for some guidance. Thank you in advance for any replies and let me know if further details are required.

ElleFiji

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Re: Student Loan Interest Accruing too quickly?
« Reply #1 on: August 20, 2017, 10:09:45 PM »
I'm concerned about this aggregate rate. In Ontario, you have 2 pieces of your loan, but both are billed at the same interest rates. However, I see USAmericans break down loans like:

38 000 8%
2000 2%
27 19%
380 6%

So maybe if you have a breakdown like that to show us, someone can do the math with you?

JohnGalt79

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Re: Student Loan Interest Accruing too quickly?
« Reply #2 on: August 20, 2017, 11:26:08 PM »
You may want to make sure your early payments are going towards paying down the principal, and NOT pre-paying future payments/interest.  I have heard Dave Ramsey mention this several times to callers regarding student loans, so even though I never personally ran into it, it must be a "thing" that commonly happens if you don't specify & verify that you want the early payment to go towards the principal.  He acted like it happens to a lot of people, and that you may have to be persistent with some student lenders to actually speak to someone who understands what you are requesting.
« Last Edit: August 20, 2017, 11:27:51 PM by JohnGalt79 »

shotgunwilly

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Re: Student Loan Interest Accruing too quickly?
« Reply #3 on: August 21, 2017, 09:58:22 AM »
You may want to make sure your early payments are going towards paying down the principal, and NOT pre-paying future payments/interest.  I have heard Dave Ramsey mention this several times to callers regarding student loans, so even though I never personally ran into it, it must be a "thing" that commonly happens if you don't specify & verify that you want the early payment to go towards the principal.  He acted like it happens to a lot of people, and that you may have to be persistent with some student lenders to actually speak to someone who understands what you are requesting.

I've dealt with this on a loan before.  It was like pulling teeth to get them to apply my extra payment to the principal instead of a future monthly payment.  I requested multiple times and finally had to speak with a manager before they changed it.  They know most people won't bother to change it.

RockytopinDC

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Re: Student Loan Interest Accruing too quickly?
« Reply #4 on: August 21, 2017, 08:20:59 PM »
Ok, so the breakdown of the rates is:

Subsidized: $ 1481.07
4.25%

Unsubsidized:

$ 19,845.70
5.16%

$ 4,893.53
5.96%

$ 18,049.23
5.59%

I will have to look into prepaying interest. I wasn't really aware that would even be possible.

secondcor521

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Re: Student Loan Interest Accruing too quickly?
« Reply #5 on: August 21, 2017, 10:41:07 PM »
^ With those numbers by my math you should be paying about $6.54 in interest per day.

The only thing I can imagine that would allow them to charge you more than the original interest rate is if there is some sort of penalty rate in effect, which would probably only come into effect if you missed a payment.  Have you missed any payments or made less than the agreed upon payment or perhaps had a late payment or two?

I'd contact each of your loan servicers and confirm the interest rate and ask why they're accumulating faster than that.  Keep asking until you get an answer that makes sense to you.

RockytopinDC

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Re: Student Loan Interest Accruing too quickly?
« Reply #6 on: August 22, 2017, 03:21:41 PM »
That's what I get as well. I will contact them

Just for further info and an example of the balance over time:

8/15: $44250
8/16: $44263
8/17: $44276
8/18: $44276
8/19: $44289
8/20: $44302
8/21: $44328

Thank you all for the replies.

yachi

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Re: Student Loan Interest Accruing too quickly?
« Reply #7 on: August 22, 2017, 03:48:36 PM »
Yeah, it looks like they have applied all your 40K in payoffs to future payments instead of principal.  if you do the math on balances of:
1,481.07 @ 0.0425
19,845.7 @ 0.0516
44,893.53 @ 0.0596
18,049.23 @ 0.0559
you'll get $13.07 in interest daily.

secondcor521

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Re: Student Loan Interest Accruing too quickly?
« Reply #8 on: August 22, 2017, 04:19:29 PM »
Yeah, it looks like they have applied all your 40K in payoffs to future payments instead of principal.  if you do the math on balances of:
1,481.07 @ 0.0425
19,845.7 @ 0.0516
44,893.53 @ 0.0596
18,049.23 @ 0.0559
you'll get $13.07 in interest daily.

Emphasis added.  This is the most likely root cause of the problem.

If it were me and that $40K in payments is recent, I would call and ask them to retroactively apply those payments to principal instead of future payments.  Worst they can do is say no.

Also, make sure to find out what the proper procedure is to get them to apply any future payments to principal and follow those procedures from now on.

yachi

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Re: Student Loan Interest Accruing too quickly?
« Reply #9 on: August 23, 2017, 02:23:12 PM »
If you made the 40k in extra payments only on the 5.96% loan, and you have an extra $ 4,893.53 you can throw at it, that should pay it off.  Once it's paid off, I think they are forced to apply the payments to principal.

Finances_With_Purpose

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Re: Student Loan Interest Accruing too quickly?
« Reply #10 on: August 24, 2017, 05:36:53 AM »
Yeah, it looks like they have applied all your 40K in payoffs to future payments instead of principal.  if you do the math on balances of:
1,481.07 @ 0.0425
19,845.7 @ 0.0516
44,893.53 @ 0.0596
18,049.23 @ 0.0559
you'll get $13.07 in interest daily.

Emphasis added.  This is the most likely root cause of the problem.

If it were me and that $40K in payments is recent, I would call and ask them to retroactively apply those payments to principal instead of future payments.  Worst they can do is say no.

Also, make sure to find out what the proper procedure is to get them to apply any future payments to principal and follow those procedures from now on.

THIS.  Yes.  Call.  Ask nicely.  Then if that fails, move up the chain.  Then if that fails, demand it.  Then if that fails, report them to authorities.  (CFPB is looking for purpose/mission and would love shaming some loan corps, I'll bet.)  There's no downside for you.  (See tips in the post below.) 

Loan companies will jack with you if they think they can get away with it.  They will use all kinds of tricks like that to make more $$$.  I've had them do illegal things to me, like telling me I couldn't repay my own loan, but eventually every single one backed down. 

THIS is the key reason I posted about loans (http://financeswithpurpose.com/9-vital-ways-repay-200000-student-loans/) - these types of tricks that loan companies pull - and it's a big focus in my upcoming Ultimate Student Loan Repayment Guide.  (You're providing me with the extra motivation, too: reminding me of past frustration.)