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Getting Personal: Funding education, a mortgage
Getting Personal
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Sallie Mae implies that using over payments to advance the due date is equivalent to applying them directly to principal, as long as you continue paying when you would have anyway (i.e., continue paying on your original schedule, not on the new due dates). In their words, "Payments are applied to the accrued interest on your account, regardless of whether the due date is advanced or not. Payments cannot be applied to future interest, because the interest would not have accrued yet."
My mother has run into similar problems with her student loans. She went back to school for her Master's degree in the 90's, taking out several loans that she eventually consolidated with a student loan company who's loans are served by ACS (recently purchased by Xerox) and has had nothing but trouble with them. They don't hold the loan but accept the payments, keep track of the balance, etc. Their accounting skills, or lack thereof are a bit terrifying.
They regularly mis-apply her early payments towards future payments, mostly interest, and when she does make an extra payment they inevitably screw-up her already scheduled automatic monthly payments.
Calling them is a real runaround as none of them ever seem to have heard of paying a loan off early or ahead of time. And swear that "no one does it" making her feel like she's doing something wrong. She's luckily found a few people at the loan originator (not ACS) that have been able to get some of the issues resolved but every time she makes an extra payment things are still thrown off. I can't imagine she's the only one with these problems. How can these places be so disorganized and why aren't there more checks on their actions?
I have also had problems with the servicing company in charge of my student loans. I have made multiple requests to have money paid toward the principals of my loans, and I have been told by this company that they cannot control how my payments are applied. This is just one of the many issues that I have had, and I have been dealing with this for almost a year. I have contacted the Department of Education, the FDIC, the Office of the Comptroller, and many other organizations to try to get some help. I have been told by everyone that they are not responsible for student loans. I had to resort to contacting my State Attorney General, and to no avail. I did learn that the company is fictitious and being operated by PHEAA. My next step is to hire an attorney, because I am getting nowhere with these matters. We need to band together and stop these egregious acts being committed by loan companies.
Thank you very much for your advice to Eric regarding paying down student loans. I must admit I too have made extra loan payments ahead of time, seen some benefit in reduced principal, but continued to see a large portion of my ongoing monthly payments go to interest --even though my next payment is not due until 2014.
Tess and Kathy seemed scandalized at the behavior of Eric's lender, yet mine seems cut from the same mold. While your advice that he write his lender and ask that all payments in advance of his next due date be applied solely to his principal, I'm still a little fuzzy on why/how interest does not continue to be due on the remaining principal. Can you clarify?
For the guy who planned to put 80% down on a $250,000 home purchase yet was finding hard to get a mortgage for just 20% - you missed a key component. Some states, like my state of North Carolina, have "high-cost" home loan laws which could make the origination of his loan illegal. Enacted to keep those smarmy mortgage brokers from taking advantage of an unsuspecting first time home buyer, they limit the amount of fees that can be charged on a mortgage. Here in North Carolina, the ceiling is 5% for all fees on mortgages exceeding $20,000. For a $20,000 mortgage, that's only $1,000. The appraisal alone is $500 which leaves little else to cover the credit report, origination fees and profit.
The result of this legislation means that $30,000 - $50,000 foreclosed homes sell only to investors because the average first time home buyer is prohibited from obtaining a loan. In the case of the caller, he should consider either less money down or buying a home he can pay for with the money he has available. So long as the loan doesn't have a pre-payment penalty, there's nothing that says you can't make a lump sum payment on your mortgage at anytime.
For the lady wanting to return to school to be a zoo keeper. There is an organization called PEO which is a national organization that devotes itself to the education of women. They have a continuing education grant that would be perfect for this woman. You do have to be nominated by a member but chances are she knows somebody who is a member. It's an avenue worth investigating.
