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How is Sallie Mae Applying My Payments? Can I Pay More?

Written by Steve Rhode

Question:

Dear Steve,

I have just over 175k in undergrad debt. After making a complaint withing the CFPB, I was able to contact Sallie Mae’s finance department to temporarily adjust my interest rate for 12 months. When we were going through this process, they tried to take advantage of me by asking me if i wanted to extend my terms for an additional 25 years at the 12% interest rate I currently have, I obviously said no (I might as well just go to jail and “drop the soap” if I wanted to get screwed that badly). They then asked if I wanted to do a 4% interest rate with the same contract I have currently. I said yes however, since then- I am confused as to how these payments are aligned.

Here is where I am confused, I have looked at my payments and I have noticed that the principal payment has decreased since I have started this program. If they were only decreasing the interest, wouldn’t my principal payment stay the same? Are they trying to do this and see if I don’t notice? Or should I expect my principal payment to decrease when they decrease the interest rate?

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Jessica

Answer:

Dear Jessica,

I’m short on some critical information, like if these are federal or private student loans.

While you included a screenshot, thank you, it’s not a full look at the statement so I have to make some more assumptions.

It does appear that the monthly payment went from $783.65 to $792.29 and then to $553.51.

What you’d need to know is how is interest charged by the day since May had more days than June or July.

It might just be that since the interest rate was reduced, and the term of the loan was not, then the monthly payment dropped to fill the term.

So if I read your question correctly, what you’d like to do is keep your payment at the $792.29 payment with the lower interest rate so you can pay it off early.

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What you could easily do is setup an automatic payment using your online banking service to send Sallie Mae an additional $238.78 each month. According to Sallie Mae, payments are applied in the following manner:

First, any Unpaid Fees are paid.

Second, any Unpaid Interest is paid.

Third, the remaining payment amount is applied to the Current Principal.

Unless you make your payments through automatic debit or instruct us otherwise, the overpayment amount will reduce the Current Amount Due on your next billing statement(s).

That seems like the easiest solution for you to manage, it will reduce the overall interest you will pay, and it allows you the emergency flexibility of reducing your additional payment if you find yourself in a bind.

Since you will be making an additional payment each month, and your current payment covers the monthly interest plus some, your extra payment should go entirely to reducing the balance due.

Sincerly,
Steve

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.





About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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