July 9, 2014

paying off student loans - extra payments and auto-debit

updated: 7/26/2014 

Upfront info: Sallie Mae's phone number (as of today, 7/26/2014) is 1-800-722-1300. After entering your account number, say "representative" to speak to a representative.

Running progress:
Period working with SM to fix payment problems: 19 days and counting
Number of calls: 4 and counting
Time spent on this: countless

So your student loan is serviced by Sallie Mae? I truly feel for you. I decided to write this up after I spent another several painful days trying to get payment issues straightened out with Sallie Mae.

I know that paying students loans suck. But there are a few things you can do to make paying off the loan a little easier/better...(at least as much as you can when paying off a student loan and working with one of the most hated lenders in the country). First, Sallie Mae offers an automatic debit payment program that will lower your interest rate by about .25%. It's not much, but anything will help and I like the knowing that my loan payment will never be late. You should read this post about enrolling in auto-debit.

There are some quirks about auto-debit that you should be aware of. For example, auto-debit does NOT allow Sallie Mae to withdraw more than your monthly payment. In other words, let's say your plan requires that you pay $425/mth and you'd like to pay an extra $100/mth...you'd have to remember to make that extra $100 every month; auto-debit only allows Sallie Mae to auto-debit $425/mth not $525. Speaking of extra payments, when you make an extra payment, your "payment due" amount gets lowered. In other words, let's say my regular monthly payment for all my loans is $425. When I make an extra payment to that loan, the "payment due" drops to something like $345 ($345 because accrued interest gets paid first). However, regardless of what amount is listed in the "payment due," if your payment is auto-debited, Sallie Mae will still auto-debit the regular full amount ($425) of your normal monthly payment (this is what you actually want SM to do if you're trying to make extra payments!). But you will have to double-check how Sallie Mae allocates that monthly payment (see Call #2 below). Auto-debit isn't perfect, but it's a good start to lower your total loans.

Now let's talk a little more about that extra $100/mth you want to make. I have several loans with Sallie Mae and Sallie Mae lumped them all together into a single "payment group." The advantage of this is that one payment covers all the loans. But, these several loans also have different interest rates. For example, I have one loan with an interest rate of 6% and another with an interest rate somewhere in the 2% range (yep, once upon a time student loan interest rates fluctuated with the economy and we could consolidate existing loans while still in school; I took advantage of a downtown in the economy and consolidated all my undergraduate loans to a low 2% interest rate-- imagine if you could do that now in this economy!), but I digress, back to extra payments. Understandably, when I make an extra payment, I want it to go to the loan with the 6% interest rate. The trouble is that because all my loans are grouped into one payment block, extra payments get distributed evenly across all these loans.

There are two solutions this issue.
  1. The first is to immediately call Sallie Mae or send them an email from the Sallie Mae website after making an extra payment and let them know that the extra payment should be applied to a specific loan. (addendum: I've seen some forums where borrowers report that sending an email from the Sallie Mae website with specific reallocation instructions worked, but it didn't for me. Every time I made an extra payment online and sent them an email about how I wanted the payment applied, the payment defaulted to the way Sallie Mae usually allocates payments (first to accrued interest and then spread out across all loans). Each time, this happened, I had to call them and request that the payment be reallocated. In fact, when I called them, SM told me that extra payments work best only if you make the extra payment right after the auto-debit (before much interest has had chance to accrue) and call them to tell them how you would like to allocate the extra payment. One representative added that an extra payment that shows up much later than the auto-debit (despite calls and requests) might even default back to spreading the payment across all the loans. In such a case, you'd have to call again and request again that the payment be reallocated. This happened to me twice. Personally, this default allocation makes no sense to me; presumably, as soon as Sallie Mae auto-debits my current payment, a new payment is likely to be due, right? So why does it matter when I make the extra payment? When I pointed this out to the nice representative, she said, "That's just the way system works." I responded that the system seems to be designed to make it harder for borrowers to pay off their loans...and she said, "Well, it's still a business." Yep, clearly, it is. We talked a little more about this and she placed the blame squarely on the shoulders of cost of attending colleges (to which I agreed), but to view Sallie Mae as an innocent bystander is just laughable at best; SM is making a killing on student loan debt! If Sallie Mae really wanted to ensure borrowers pay off their loans, Sallie Mae would automatically allocate extra payments to whatever loans were accruing the highest interest...(credit cards used to allocate payments to the lowest interest rates, but credit card reform fixed that problem; surely, they can do the same with the student loan business!!!). Given this problem with my extra payment, I really think the option #2 is a better method if you're planning to make many extra payments to one particular loan with higher interest rates).
  2. The second option is to call Sallie Mae and have that one loan "ungrouped" or moved to its own payment group. And that's exactly what I did during my call. She said it would take about 7 days for the loan to be "ungrouped." Then if you already have auto-debit set up, you'll have to go back and set up auto-debit again for that one loan. Yes, it's a hassle, but once that's done, any time you want to make an extra payment, you can do it through their website by choosing just that loan to make a payment to. See here, here, and here (in the comments section); going this route means you don't have to remember to send them a message or call them each month when you make an extra payment.
Finally, keep in mind that you may not always want to pay down the loan with the highest interest. Say your loan with the highest interest rate is only about $2,000 whereas you have a loan for $25,000 with a lower interest rate. In this case, it may behoove you to pay off that big balance first. But if your loan amounts aren't as cut and dry, go to unbury.me to determine which method (snowball (paying off the lowest balance) or avalanche (paying off the highest interest) is better for you). Since the directions for unbury.me aren't entirely clear and the avalanche/snowball buttons didn't work for me, just enter different amounts for different loans (e.g. enter your first loan without your planned extra payment, enter your next loan with your planned extra payment, then hit calculate to see how much you'd pay in interest. Then, reverse the process to see how much interest you would pay the other way around). In my case, it was better to go with avalanche than snowball as I would save over $3,500 in interest!

I'll update this post when the entire process goes through.

UPDATE 7/26/2014
As promised, let me update you on the process so far. 

Mon, 7/7/2014: 
I make an extra payment on Monday, 7/7/2014-- let's call this Extra Payment #1 or EP#1. I wanted all of that extra payment applied to the loan with the highest interest-- I let them know this preference by sending them an email via their website.
Fri, 7/11/2014: Call #1
EP#1 has shown up online and instead of following my request, Sallie Mae has spread the entire payment across all my loans. I call them and request that the payment be reallocated and this loan put it's own payment group.
M, 7/14/2014:
My regular monthly payment is due and is auto-debited.
Thu, 7/17/2014: Call #2
I check my loan online and notice that EP#1 has been correctly reallocated. Unfortunately, because it was corrected, it seemed to have lowered the balance due on the high-interest loan I want to pay off. Instead of applying my usual monthly payment to this loan, Sallie Mae applies only half of what they usually apply and reallocate the monthly payment across the remainder of the loans (all with much lower interest rates!). Moreover, the high-interest loan has still NOT been "ungrouped." I call again to 1) have the monthly payment correctly reallocated and 2) make a second request to ungroup the loan. The nice guy apologizes, says he understands why I want to pay down the high-interest loan first, and says that all should be fixed within a week.
W, 7/16/2014:
I make another extra payment (EP#2) and send them an email requesting that the payment be applied only to the high-interest loan.
M, 7/21/2014: Call #3
I check to see how everything is looking. The monthly payment has been correctly reallocated, BUT EP#2 has once again been spread across all the loans and the high-interest loan is still grouped in one payment block. I call them again and ask them to fix the EP#2 allocation. I don't say anything about the payment grouping because according to my call to them last week, they still have a few days to fix this.
Thu, 7/24/2014: Call #4
I check the loans again. All payments seem to have been correctly allocated, but the loan is still in one single payment block. I call them again and make another request to ungroup the loan. The guy assures me that the request is there and it's just taking a little time. He asks me if I would like the payment for that loan to be auto-debited even after it's been moved into its own payment group. I say "Yes, please-- that would be great," (since I want to continue receiving my 0.25% interest rate reduction and the ease of auto-debit). He says "Great, no problem!" I think "famous last words."
Sat, 7/26/2014:
I check online. Hurrah! The loan has been ungrouped! All payment allocations are correct! BUT (you knew a 'but' coming) the highest-interest loan is NO longer being auto-debited so the interest rate has been bumped back up by 0.25%. I check my auto-debit section and it shows that I'm still enrolled but there is a message that not all of my active loans have been enrolled in auto-debit. I send them an email via their website and decide to go ahead and update my auto-debit info to see if this would help (under Make Payment -> Manage Payments and Bills -> Enroll in Automatic Debit). I re-enrolled in the auto-debit program by going through everything (setting up my payment account, signing my note digitally, and submitting it online). You may also choose to download the form and mail it in.   
Thu, 7/31/2014:
Finally, it looks like everything has been corrected. The ungrouped loan has its own payment group, it's back in auto debit (don't know if it was my email or my enrollment), and even the correct amount is noted in the "amount due" section.

So the whole process took 4 calls and about 3 weeks. I'm almost giddy about making the next payment to see what happens.

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