Direct Loans says I can't use $6000 to pay up.
July 7, 2010 9:14 AM Subscribe
Direct Loans says I can't use $6000 to pay up.
At the moment my deep debt is in forbearance with Direct Loans; my payments start in August. Recently I sent them $6000 (part of an educational award from Americorps), hoping that would push back my payments while I save up more money.
Direct Loans says that since I paid before my forbearance ended, I can't use the money toward my monthly payments. However, if I had waited, that $6000 could have been about 2 years of payments.
What can I do to appeal? Who do I appeal to?
At the moment my deep debt is in forbearance with Direct Loans; my payments start in August. Recently I sent them $6000 (part of an educational award from Americorps), hoping that would push back my payments while I save up more money.
Direct Loans says that since I paid before my forbearance ended, I can't use the money toward my monthly payments. However, if I had waited, that $6000 could have been about 2 years of payments.
What can I do to appeal? Who do I appeal to?
Just reapply for forbearance when it expires, and now you have less of a principal balance for the interest to accrue on. I've been in forbearance with Direct Loans for years and they've never turned down my renewal request.
posted by booknerd at 9:21 AM on July 7, 2010
posted by booknerd at 9:21 AM on July 7, 2010
in my experience with DL, you need to specify in advance of any payment that you want it to count toward multiple months. If your monthly payment is $100 and you send $200, you will still owe $100 the next month unless you tell them that this payment is for multiple months. So, basically what valkyryn said. But DL is pretty good about granting forbearances when you ask (it's just going to be accumulating interest). I think you can make small payments even when you are in forbearance, if only to stem some of that interest.
Also, be prepared for a bad tax year. That $6000 award counts as income, and will be taxed. The year I cashed in my Americorps ed award I had to borrow money to pay my taxes as I was not prepared and had expected a refund as usual.
Sorry! Not a fun situation.
posted by cubby at 9:25 AM on July 7, 2010 [1 favorite]
Also, be prepared for a bad tax year. That $6000 award counts as income, and will be taxed. The year I cashed in my Americorps ed award I had to borrow money to pay my taxes as I was not prepared and had expected a refund as usual.
Sorry! Not a fun situation.
posted by cubby at 9:25 AM on July 7, 2010 [1 favorite]
Best answer: So they put the $6k towards principal repayment rather than future monthly payments? That makes sense; actually it's kind of nice on their part. (The really dick move on the part of lenders is to apply overpayments to future months' interest rather than towards principal. I think it should be illegal, actually; it's a common way of screwing people who think they're doing the right thing by paying extra on their loans.)
One thing to ask them would be if they can keep the original loan's amortization schedule and payoff date, and give you a lower monthly payment rather than scheduling the loan to be paid off earlier, since you just paid a chunk of principal. Some lenders don't recalculate monthly payments unless you ask (or in some cases at all), and just keep you with the same monthly payments -- the net result is that you pay off the balance earlier. This is what most people want, but in your case maybe you'd prefer to have lower monthly payments instead.
If they do that and you still can't make the monthly payments, then it'd be time to ask for another forbearance.
But in the long run I think you did the right thing by accident; it's hard for me to imagine why you would want to put a chunk of money towards future payments rather than principal, given the choice, particularly since (if the lender is anything like the ones I've had) they're going to expect you to start making monthly payments when the forbearance period is over regardless. Even if they had taken your money and applied it in the way you thought they were going to, it would have been towards interest and not a way of just avoiding six months worth of payments. I've never known a lender that would let you pay in advance like that; although I'm sure there are exceptions, what lenders generally want is a steady stream of regular payments, not unpredictable lump sums.
In retrospect, if you had wanted to use that money for the regular payments you probably wanted to put it into a dedicated bank account and then set up automatic payments, not send it to the lender. But I really think that paying down the principal with your windfall was the right thing to do.
posted by Kadin2048 at 9:53 AM on July 7, 2010
One thing to ask them would be if they can keep the original loan's amortization schedule and payoff date, and give you a lower monthly payment rather than scheduling the loan to be paid off earlier, since you just paid a chunk of principal. Some lenders don't recalculate monthly payments unless you ask (or in some cases at all), and just keep you with the same monthly payments -- the net result is that you pay off the balance earlier. This is what most people want, but in your case maybe you'd prefer to have lower monthly payments instead.
If they do that and you still can't make the monthly payments, then it'd be time to ask for another forbearance.
But in the long run I think you did the right thing by accident; it's hard for me to imagine why you would want to put a chunk of money towards future payments rather than principal, given the choice, particularly since (if the lender is anything like the ones I've had) they're going to expect you to start making monthly payments when the forbearance period is over regardless. Even if they had taken your money and applied it in the way you thought they were going to, it would have been towards interest and not a way of just avoiding six months worth of payments. I've never known a lender that would let you pay in advance like that; although I'm sure there are exceptions, what lenders generally want is a steady stream of regular payments, not unpredictable lump sums.
In retrospect, if you had wanted to use that money for the regular payments you probably wanted to put it into a dedicated bank account and then set up automatic payments, not send it to the lender. But I really think that paying down the principal with your windfall was the right thing to do.
posted by Kadin2048 at 9:53 AM on July 7, 2010
Best answer: Here's my Americorps story:
My loans were behind when I started Americorps, I admit this. When I started Americorps, I sent away my forbearance paperwork (this was before you could do it online, via the My.americorps site) to my state liason, who told me it could take up to 12 weeks to go through. No worries. Fast forward right about 10-12 weeks, and I get notice from the feds that I'm in default.
So I call them, and explain that no, indeed, I'm not---I've got guaranteed forbearance.
Nope they say, never received. So I send them all kinds of documentation showing when I started. Nope they say, once you're declared in default, you can't leave default until you make 12 on-time payments. So I fight them. I have my state office call, I talk to the Americorps and the Corporation folks. They all send in certified stuff that I should be in forbearance. In the mean time, the debt is piling up--late fees, not to mention the 25% fee they tack on for going into default.
So anyway, I just kept fighting it. So towards the end of my year, they fire someone from the state office. After firing her, they go into her office and find about 8-10 file folders full of stuff she never forwarded on. My paperwork was NOT in those folders, but another girl's WAS. She had also gone into default thinking her paperwork had been submitted.
Anyway, I send confirmation of ALL of this to them, and nothing. De nada. Pay up. So anyway, fast forward a good long while, and what was $19,000 in debt is now $28,000. In the whole debate, the thing that pissed me off most was that the fee they added on was almost exactly equal to my educational award, basically negating the educational award, and I Was Not OK With That.
So I'm talking to them one day, and they agree to accept like $60 a month. Good deal I think, I'll just ship them over 1 Americorps payment in the amount of $720, which will keep me $5,000 left over, the fee will go away, and I'll only lose $720. Nope, fail, can't do it. Has to be 12 payments. So I offer to jack it to 3k. Nope, has to be 12 payments.
So long story short, I paid the stupid 12 payments in a row, got the "fee" removed, but I'm still looking at about $2500 more in fees from the interest and just that accrued.
It was explained to me that the educational award is paid via basically a transfer from the Treasury to the Dept of Ed, and it is not even recorded as a payment by you (me.) That's why it doesn't count.
You will also owe income tax on the educational award you pay out, which is also straight up bullcrap. They never tell you any of this in advance. Sorry mate.
posted by TomMelee at 10:37 AM on July 7, 2010
My loans were behind when I started Americorps, I admit this. When I started Americorps, I sent away my forbearance paperwork (this was before you could do it online, via the My.americorps site) to my state liason, who told me it could take up to 12 weeks to go through. No worries. Fast forward right about 10-12 weeks, and I get notice from the feds that I'm in default.
So I call them, and explain that no, indeed, I'm not---I've got guaranteed forbearance.
Nope they say, never received. So I send them all kinds of documentation showing when I started. Nope they say, once you're declared in default, you can't leave default until you make 12 on-time payments. So I fight them. I have my state office call, I talk to the Americorps and the Corporation folks. They all send in certified stuff that I should be in forbearance. In the mean time, the debt is piling up--late fees, not to mention the 25% fee they tack on for going into default.
So anyway, I just kept fighting it. So towards the end of my year, they fire someone from the state office. After firing her, they go into her office and find about 8-10 file folders full of stuff she never forwarded on. My paperwork was NOT in those folders, but another girl's WAS. She had also gone into default thinking her paperwork had been submitted.
Anyway, I send confirmation of ALL of this to them, and nothing. De nada. Pay up. So anyway, fast forward a good long while, and what was $19,000 in debt is now $28,000. In the whole debate, the thing that pissed me off most was that the fee they added on was almost exactly equal to my educational award, basically negating the educational award, and I Was Not OK With That.
So I'm talking to them one day, and they agree to accept like $60 a month. Good deal I think, I'll just ship them over 1 Americorps payment in the amount of $720, which will keep me $5,000 left over, the fee will go away, and I'll only lose $720. Nope, fail, can't do it. Has to be 12 payments. So I offer to jack it to 3k. Nope, has to be 12 payments.
So long story short, I paid the stupid 12 payments in a row, got the "fee" removed, but I'm still looking at about $2500 more in fees from the interest and just that accrued.
It was explained to me that the educational award is paid via basically a transfer from the Treasury to the Dept of Ed, and it is not even recorded as a payment by you (me.) That's why it doesn't count.
You will also owe income tax on the educational award you pay out, which is also straight up bullcrap. They never tell you any of this in advance. Sorry mate.
posted by TomMelee at 10:37 AM on July 7, 2010
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There isn't any appeal here. You made a choice, and the fact that you made the wrong one isn't cause for the lender to essentially re-lend you that money.
posted by valkyryn at 9:17 AM on July 7, 2010