Thursday, September 21, 2006

This is how Sallie Mae keeps students in debt

Am no mathematician but damnit the math here does not make any sense.

Next payment due: 12.67 Payment due date: 10/06/06

Outstanding Principal balance: 7,987.76

Accrued interest: 75.90

Total Amount Outstanding: 8,063.66

HUH!!!

Current interest rate is 10+ percent. That translates into almost 3 dollars per day in interest. WTF, that is more than the damn interest on my loan. No wonder the freakin principal balance seems to go up all the damn time.

Mind you this is with a very aggressive repayment strategy I just set up.

Last three payments:
8/28/06 $75
07/14/06 $100
07/10/06 $200

The next payment is set to go out on 09/22/06 in the amount of $100.

Arghhhhhh!!!!!

According to the guy in India or Pakistan where ever the hell he is, the monthly interest is $65.69. Yet still they are telling me I should pay $87.74. WTF I am never going finish this then. That means at 26 I will be 40odd years and still paying this.

Sallie Mae you can kiss my a.s.s.

I will continue paying twice per month and see where that leads me. (August was the only month where I slacked off).

What I need is a magic number that will actually bring down the ‘Outstanding Principal Balance’.

p.s if this post makes absolutely no sense to you, welcome to the club. I am just as clueless.

9 comments:

ntbeachnc said...

I'm sure you're doing this, but make sure when you send your payments, you let them know that any extra is to go towards paying down principal. If not, they'll apply it to the next month's payment (principal and interest), which doesn't help you out at all. My regular payment is automatically withdrawn from my account and then I mail a check (stating strictly "for principal only") for any extra I'm sending.

Single Ma said...

I 2nd the previous commenter. If your regular monthly payment is $87.74 and your next payment due is only $12.67, then it's because they are applying your extra payments as advanced payments, not PRINCIPAL payments.

For example: (I haven't performed any real calculations so the numbers used below are for illustration purposes only)

Let's say you have a monthly payment of $80 with a balance of $10,000.

Assume this $80 is $70 interest and $10 principal.

If you pay $80, your new balance will be $9,990 because you've only paid $10 in principal. However, with a 10% interest rate, the balance may jumped back up to $10,020 by the time your next payment is due because the interest has capitalized (accrued daily, then added) at the end of the month.

Further, let's say you paid $160. They will apply your regular $80 payment for October, then apply the additional $80 as an advanced payment for November.

In other words, your next payment won't be due until December, but you still have interest accruing and capitalizing every month. By the end of November, interest capitalized on a balance of $10,020 and your regular $80 payment went mostly towards interest and barely touched the principal. This is why it seems like you're not making much headway and your balance is growing.

What you want to do is make your regular payment of $80, which would hypothetically create a new principal balance of $9,990. Then send the $80 as a separate payment with "principal payment" written on the check memo line. Also, to make sure you CYA, I'd attach a letter that says "please apply this additional payment to PRINCIPAL only."

This will result in principal balance of $9,990 after your regular payment posts, then $9,910 after your additional payment is applied to PRINCIPAL. Interest will still captialize at the end of October so your balance may go back up to $9,930 vs. $10,020.

The difference is, your principal is decreasing. When interest accrues, the 10% rate is now being applied to a lower principal balance, resulting in a smaller increase in your total balance.

Then you would still have to make a payment in November and the minimum due should NOT change.

I apologize for being so long winded and rambling, but I hope this explains why your balance appears to be growing instead of decreasing.

Bottom Line: send extra payments marked as PRINCIPAL ONLY.

Marlon32 said...

I agree, make sure to pay toward principle to bring down the balance. I agree with you though, Sallie Mae is full of $&*@. They intend to keep you attached to that loan for as long as they can....And that means increasing the principle. I got about $10,000 worth of debt with them now in private loans. I wish I never took those out to go to grad school. We'll win in the end though; you'll see!!!!

Tired of being broke said...

Thanks for the advice everyone. i am going to be more dilligent in making sure the first payment for takes care of all the interest plus some principal, so the next payment will be principal only. The second payment will be a money order versus the normal online payment from my bank.

3 Things About Money said...

Nice blog. And I so understand -- I am in the same boat with studentloans, so much so that I make extra principal payments every friday on the weeks when a regular payment isn't due. I made a form letter for the extra payments and I find that shipping off an extra check for 7.86 or 18.50 every week is smoother with the form letter. Anyway, thanks for the inspiration.

Anonymous said...

RIGHT LET THEM KNOW!!! YOU WANT THE EXTRA PAYMENT APLLIED TO PRINCIPAL, GOOD INFO THANKS!


What if I want to send larger payments to pay down my principal balance?
If you send an amount greater than your monthly installment, we will automatically apply those funds toward your next monthly payment unless you tell us otherwise.


The payment is first applied to unpaid late fees and charges, then to the accrued interest due on the loan, and the remaining amount is applied to the principal balance. Payments cannot be applied to future interest because interest accrues under the simple daily interest formula (see "How does my interest accrue?

If your student loan is paid ahead, and you choose to continue to make monthly or periodic payments on the loan, you may need to contact us to request a new coupon book.
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Where can I send my payment?
You can remit a one-time payment or schedule future payments by using our Pay Now feature, enroll in Online Billing, or sign up for Automatic Debit.

You can also mail your payment. If you do not have a coupon or bill, please be sure to write your account number on your check or money order.
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My private education loan(s) is not yet in repayment. How can I make a payment?
Although we do not send bills to borrowers until payments are due, you may prepay your loan at any time without penalty. All payments must be remitted in U.S. dollars drawn on a U.S. bank. You may submit your payment online at any time by using our Pay Now service.

You may also submit a check or money order to:

Sallie Mae, Inc.
Attn: Payments
P.O. Box 9533
Wilkes-Barre, PA 18773-9533

Anonymous said...

Lesson learned: If you want to pay down the principal, DO NOT USE ONLINE PAYMENTS!

Let me explain: in the past when I was paying Sallie Mae with checks, they properly applied whatever additional amount I included to the principal. A few months ago I decided to try online billing and payment, and now have noticed that for the last five payments NOT ONE PENNY has been put towards the principal.

Of course I will receive no satisfaction from Sallie Mae's poor representatives, but I have emailed them to start a paper trail, demanding that they explain in plain English the difference between a check payment and an online payment. I made it clear that I will gladly waste my time in court and persist in writing letters to elected officials until I achieve some sense of satisfaction.

Sallie Mae is a clearly a monopolistic outfit run by shylocks masquerading as a student-friendly quasi-governmental agency. As such, it exhibits the worst of both worlds: an incredibly tedious and cumbersome bureaucracy and a deep sense of greed.

Unfortunately they seem to be too powerful to fail at the moment, but if they persist is screwing the very people they purport to be helping, it's only a matter of time before they are regulated to within an inch of their former self.

Keep the pressure up, people. As with North Korea, we'll outlast them.

Anonymous said...

We were told by a rep that they DO NOT apply extra payments to principal. Instead, you need to tell them DO NOT ADVANCE DUE DATE and just send your payments every month with or without a coupon. We learned this the hard way after $1400 extra sent over a year and only $200 taken off the principal. The extra cash went to advanced payments and their pockets. I HATE Sallie Mae.

Anonymous said...

You can post principle payments online. You make a payment that is equal to two or more monthly payments at a time. My spouse’s minimum monthly payment is about $238, so I need to make extra payments equal to at least $476 to trigger the screen that allows me to designate it as extra principal payments.

The screen will pop up asking if you want to apply the $476 to principle only. Click yes.

Keep an eye out as things post. Having student loans with SM is a bitch but you can work the system with patience and focus. Good luck!