So when you pay more than your monthly minimum, you are thinking to yourself "I am going to save money by paying my loan off faster by making payments for more than the statement amount". Well thanks to paid ahead status, that assumption is WRONG. Other lenders may call it something different, but most of them have this stipulation in there somewhere.
So what do you do about these chicken f****** rules? Well, you could:
1) Refuse to pay all of your student loans on principle and have them destroy your credit and garnish your wages
2) Refuse to pay all of your student loans on principle and have them destroy your credit and live incognito for the rest of your life
3) Refuse to pay all of your student loans on principle and have them destroy your credit, but move out of the country and laugh at them because they CAN'T garnish your wages. And only move back when you are dead or the government has collapsed.
4) (Most realistic) - Mail in your payments by check and write a letter indicating that you want the extra amounts (make sure you state what amount is extra) to be applied towards the principal, NOT towards future payments. Also feel free to write nasty things in the memo field of your check.
Remember, STAY VIGILANT and check out the back of your student loan bills. This is what mine from AES said, but after research it turns out that Sallie Mae also states something similar.
Paid Ahead Status: When you make a payment that is greater than your monthly installment amount, the payment is credited first to satisfy any outstanding installments due and then any additional amount is applied toward future installments (and is pro-rated across all loans).
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In doing an online search to see if I wanted to reinstate my paid ahead status, I came across this blog post.
I just wanted to comment, in case you weren't aware, that in some cases (I'm sure it depends on the lender) you can write a letter to your student loan lender and request an "opt-out" of the paid ahead status. AES is also my lender and they granted my "opt-out" request with no issues.
Now, I'm trying to find some information to see if it would currently save me money by requesting an "opt-in" since I get contributions to my student loans from Upromise. I think the only snag is that the payoff date doesn't change, so I'm not sure if I'd end up with a large monthly bill at some point.
Thanks Sara, that is very good information to know.
I'd double check to make sure that the same is true for regular one-time electronic payments online.
Another way they can get you is through the "automatic" payment option. If you choose this option you usually have to sign off on additional agreements (possibly reversing any letters you may have sent them).
Just found this during a search also. I was concerned that my loan shows that my next payment isn't due until 2013 (!!) but the page showing how my recent payments were applied indicates that it DID apply the extra to principal (after interest) each month. I emailed my lender's customer service asking about this and the response seemed to indicate that somehow it's BOTH being applied to principal AND paid ahead. I still don't get it. (They did tell me I'd have to send a note with EACH payment if I DIDN'T want it to be applied to future amounts due, but since it seems to be all going to principal anyway...I'm not sure if there's any point in doing so.)
This is NOT TRUE. Paid ahead status does NOT impact principal payments. Paid ahead status is based on law, it is okay.
Noticed my interest jumped up significantly because they bumped up the interest rate about 66 basis points. Went through my AES statements - and of course found no explanation for the calculation: Just a form letter saying they would raise my rate. It did not I say I could pound sand, but I figured that out myself.
So I looked into the 'Paid Ahead Status.' As anyone reading this knows - car loans often use this gimmick. They apply prepayments to future payments rather than to principal. My daughter had a car loan and prepaid for almost two years before she came to me about the issue. That cost her about $800. The lender was ALLY, btw.
After careful calculation with my AES statements from May to September, though, I did find that AES was applying my prepayments to principal correctly. The interest calculated was a bit odd - but that was explained by application of the new interest rate.
So as to my AES loan - Banker is correct. They are applying the prepayments to principal. Maybe this is an 'education' loan thing.
BUT I would pay attention to this issue. I have had this problem with ALLY, GMAC, and a couple of local car dealers: So it is a real thing that does happen. Just not on my AES loan in this case.
Thank you for the blog.
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