Despite being out of law school for about 12 years, I still have a pretty good amount of student loans hanging around.  I paid my smallest student loan off way back in 2012 throwing extra money at it when I could, and I never really worried about the balance since they were all locked in at an interest rate of 3.50% and only costs me a few hundred every month so it wasn’t worth liquidating assets to pay it off completely.  Notwithstanding, earlier this year I thought it would be a good idea to put a few dollars (and I do mean a few dollars – $50) systematically into my student loans to pay down principal a bit faster.  Then I ignored the account other than to sign in every month to grab the balance for purposes of recording it on my monthly net worth spreadsheet.

This seemingly easy personal finance move (i.e. pay down debt faster) has caused me multiple phone calls to my student loan provider, NelNet, and a dizzying array of google searches.

How are Student Loan Payback Schedules Calculated

Prior to going through the what occurred, I think it would be beneficial to go over quickly how student loan interest accrues:

Principal * Interest Rate = X/365 = Your Daily Interest Charge

Once you have your daily interest charge * the days in the month = Y

Assuming there are no fees or penalties, anything over “Y” goes to principal.

What Happened After I Made Additional Payments to my Student Loans with NelNet

What prompted this was when I signed in for my December Net Worth and noticed that my student loans were paid through February of 2019.

student loan screenshotWell, that doesn’t make much sense I thought to myself and immediately called up NelNet.  They informed me that it was their policy to move the due date ahead if extra payments were made and sent me to their site to look it up,

Paying More Than Your Current Amount Due

Unless you direct your payment to an individual loan or group, the standard allocation method is as follows. After your current amount due is paid, payments are allocated across loans in repayment status starting with the highest interest rate. Once the loans in repayment status with the highest interest rate are paid in full, any remaining payment amount will be allocated across the loans with the next highest interest rate. If two or more loans in repayment status have the same highest interest rate, the payment will be allocated first to the unsubsidized loans and then to the subsidized loans, in proportion to each loan’s regular monthly payment amount.

When you pay more than your current amount due, your due date on loan groups in repayment status will advance by one month each time you satisfy the regular monthly payment amount for that group. Your monthly billing statement will show $0 due for that loan group.

  • Since your excess payment will continue to be applied to the loan group starting with the highest interest rate, you will continue to have an amount due for loan groups with lower interest rates.**
  • You have the option to request that we not advance your due date when you pay more than your current amount due. See Special Payment Instructions for more information.
  • If you want your excess payment to continue to advance the due date of all of your loan groups in repayment status, you can direct your excess payments to all loan groups in repayment status, instead of targeting the loan group(s) with the highest interest rate, as a one-time or recurring special payment instruction. This will help keep the due dates for all loan groups aligned.

The initial customer service tried to assure me that this was a good thing, and this didn’t sit well with me for 2 reasons.  First, the cynic in me said that if a debt servicing company had it as its default it had to be benefiting them, not the borrower.  I don’t fault them for it, just didn’t buy what the CSR was selling.  The second, and way more important part, something just didn’t feel right with the CSR’s logic that pushing ahead a due date rather than killing off principal payments on the back-end would work out better for a debtor.

First step was to google, and wow, it did not take long to find out that I wasn’t the first one in this position.  The long and short of it is that, when I paid my extra $50/mo they moved my due date little by little until we got to where we are at today (ahead 3 months).  While at the same time, since I was “ahead” NelNet started to accrue my subsidized loan’s interest leaving me was an accrued interest of $515.  While it didn’t capitalize (i.e. get added to the principal), there is just no reason for me to accrue it.

My Phone Calls to NelNet to Fix my Advance Payment Problem

By my 3rd call I was able to verbalize the problems that needed to be fixed:

  1. I needed someone to explain to me what happened (see above).  Connecting to this was someone to confirm that something wasn’t right and the original CSR was just wrong.
  2. The past 6 months of extra payments needed to be fixed. I didn’t want any accrued interest, and I wanted those payments to be treated as pure principal payments.
  3. I need reassurance that this wasn’t going to be a problem in the future.

In the end everything was fixed! 

I was able to finally get a supervisor on the phone that assured me I wasn’t crazy (at least not when it came to this issue).  She explained NelNet’s policy, why it was done (blamed federal regulations), and how to fix everything.  She would put in a change order that would go back to my first additional payment wherein those extra payments would solely be applied to principal and would not push my payments ahead.

It took a few days, but I received an email confirmation that everything was fixed.  I was able to go into my account and check that everyone was fixed evidence by:

  • My accrued interest going from approximately $515 to $0;
  • A smooth “applied interest” schedule rather than the drastic drop of ~$120 to $60;
  • A drop of approximately $300 in principal (the 6 or so months of $50/mo extra).

In addition, she put in a special payment instruction that any time they receive an extra payment from (currently that is only $50/mo extra) they will only apply it to principal preventing this problem.

Personal Finance Lesson to All: Check your Student Loans

Your Student loans, much like your mortgage, may be an easy thing to set and forget.  You put in your bank account and just ignore both accounts since it is so insurmountable that you’ll ever pay off them off.  However, let my 2 – 3 hour ordeal be a lesson to check on the accounts! Make sure what you think is happening, is in fact, happening.