Student Loan Question

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Post subject: credit question

Joe
Date: 11/24/2000 12:34 am CDT

I have been paying back my Government student loan for about 1 year. I have never been late with a payment. I chose a repayment option that allowed me to make the lowest payment possible for the first 2 years of repayment. I was told that for the first 2 years I would be paying interest only. The total amount that I owe is approximately $7,400 and my minimum payment per month is $50.90. Last month I sent them a payment of $55. I recieved my next statement a few days ago. It said that the total amount of $55 that I sent was all going toward interest. I was expecting my principle to decrease by $4.10 because I sent them that much more. I proceeded to call them. What they told me was that interest accrued on this account daily and even though I have never been late on their due dates that because a couple of months ago there was a 37 day gap between when they received the payments, they said that I accrued about $70 in interest during that time and now I am just getting caught up on that. Needless to say, this infuriates me. Unfortunately, I don't know if there is much I can do. I have credit card debt of approximately $12,500. I have enough crdit limit to transfer this loan to but I am reluctant to do that because I am afraid on my limited income I would not be able to keep up with $20,000 of credit card debt. I have also thought of some type of consolidation loan but I am not sure if I should even try that or if I could even get it. I do not own my home but I do own a car. My income is only about $800 a month right now and I am paying 5 different credit cards right now. That changes a lot though, because I constantly shop around for better interest rates. Any suggestions that you may have I would appreciate. Thank You!

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Board Monitor - AD
Date: 11/25/2000 1:31 am CDT

Dear Joe,

What is often nice about a student loan is that the rates are usually reasonable, interest (in most cases) can be tax deductible, and creditors don't consider student loans as bad loans, such as would be the case with credit card debt.

Though I am not exactly sure what your question is, if it's to pay off your student loan, then additional payments should be applied to the principal, and not the interest. It may help to send future payments with a letter attached stating that the amount enclosed must apply to the principal, and not future payments. Though you should call in advance to find out any additional information, or process in which must be followed.

If you are paying less interest on your student loan, even if you are only paying interest, it may be better off to not transfer the amount to credit card debt, mainly due to the fact that your payments will most likely be higher as credit card payments tend to reflect approximately 2% of the balance. So a balance of $7,400 may be around $148 a month (though this varies among creditors).

You might also want to contact the creditor of the student loan to get some figures, such as how long it will take to pay off the loan and the total amount of finance charges you will end up paying over the life of the loan.

Of course, with those low introductory rates, you may end up paying less in finance charges with a credit card. But remember, managing credit card debt is like playing with fire (i.e. balance transfers, fees, high payments, etc.), and if you are not careful, you could get burned…

Sincerely,
Alex Daskaloff
creditcardfreedom.com

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Ray
Date: 11/27/2000 9:25 am CDT

Joe should read his note or contract. It may be that it explains how payments should be processed. It may say that payments must be applied to interest first before principal.
However, if it is the opposite, he needs to write the agency and have the payment applied as principal first. If they refuse, I would contact the Federal Trade Commission.

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