A SL rant

[riverwed070707]

Just had a call with my new goverment SL servicer. I asked about having my extra payments automatically withdrawn (previously I had to manually make them in addition to my regular payement each month). This is no problem. Great one less thing each month.

I ask if I can have my extra applied to the loan with the highest interest rate rather than dispursed among my loans, two of which have 2% rates and 2 of which have 6.5% rates. They say sure... but you have to call us each month after the payment is made to tell us which loan you want it applied to. Well that kinda takes the ease out of having it autowithdrawn, doesn't it?

Problem 2. Please have staff educated enough to give accurate advice. She asked which 6.5% loan I wanted my payment to go to. One has a $4k bal, one has a $2.5k balance. I said $2.5k if they are the same interest rate. She says "ok but you know you're going to pay more interest on the higher balance, right? It will cost you less over the long term to pay on the bigger loan." I'm not a math person so correct me if I'm wrong, but an interest rate is a percentage which means that I will pay the exact same in interest whether I pay the lower balance or the higher balance first. The only way I'm getting screwed is if you take part of my extra and apply it to a 2% loan.

[kv968]

Problem 2. Please have staff educated enough to give accurate advice. She asked which 6.5% loan I wanted my payment to go to. One has a $4k bal, one has a $2.5k balance. I said $2.5k if they are the same interest rate. She says "ok but you know you're going to pay more interest on the higher balance, right? It will cost you less over the long term to pay on the bigger loan." I'm not a math person so correct me if I'm wrong, but an interest rate is a percentage which means that I will pay the exact same in interest whether I pay the lower balance or the higher balance first. The only way I'm getting screwed is if you take part of my extra and apply it to a 2% loan.

If they were all one loan, then yes it wouldn't matter since you wouldn't have a choice. However since they're two separate amounts with same rate, it would make sense to pay down the bigger one first. Just real quick back-of-the-envelope math without going into amortization...

$4000 @ 6.5% = $260/yr interest
$2500 @ 6.5% = $162.50/yr interest

Even though it's the same interest rate, it's being applied to a bigger balance so I'd work on that one first.

[riverwed070707]

Right but you do need to go into amoritization because I'm not just paying a set amount each year... I'm paying 6.5% interest on the total balance regardless of whether one loan is $2k and one is $4k or if it is one $6k loan. If I pay off the smaller loan, I'm paying 6.5% interest on the balance of the $4k loan, the same as if I pay $2.5k on the bigger loan and have two loans totaling $4k. Using numbers, I will pay roughly $422 in interest this year whether there is one loan or two.

Your logic is flawed.

[snshijuptr]

KV, that is the same wrong logic the woman at the call center used. Riverwed, you are right. Here is a better way to think about it.

If you overpay by $1000 to either 6.5% loan, you will save $65 after a year. The amount of principal effects the total interest accrued, but in this case, we don't care about the interest accrued since riverwed doesn't really have control over that; we care about the interest saved which riverwed can increase by paying more principal. If riverwed was choosing to completely pay off the $4000 loan or the $2500 loan, we would say to pay $4000, not $2500, because $4000 is more money toward paying off debt! If riverwed only had $2500, we would say pay off the $2500 loan, not because it saves her more money, but because it makes her life simpler (unless she was considering her credit score then it would get complicated).

[auron]

If they were all one loan, then yes it wouldn't matter since you wouldn't have a choice. However since they're two separate amounts with same rate, it would make sense to pay down the bigger one first. Just real quick back-of-the-envelope math without going into amortization...

$4000 @ 6.5% = $260/yr interest
$2500 @ 6.5% = $162.50/yr interest

Even though it's the same interest rate, it's being applied to a bigger balance so I'd work on that one first.

6.5% is 6.5% regardless of what the balance is. You will not save any extra money paying down the higher balance than the lower balance loan when they are the same rate (int %).

[flipyourdebt]

Agreed, there is no difference which one you choose to pay off first, UNLESS there are early payment penalties or both aren't fixed rates.

[kv968]

Your logic is flawed.

You're right, my logic was flawed. My "back-of-the-envelope" math was a little TOO "back-of-the-envelop" Sorry about that, don't know what I was thinking. Hey, at least I should be able to get a job at the gov't SL server office

[Hector]

Right but you do need to go into amoritization because I'm not just paying a set amount each year... I'm paying 6.5% interest on the total balance regardless of whether one loan is $2k and one is $4k or if it is one $6k loan. If I pay off the smaller loan, I'm paying 6.5% interest on the balance of the $4k loan, the same as if I pay $2.5k on the bigger loan and have two loans totaling $4k. Using numbers, I will pay roughly $422 in interest this year whether there is one loan or two.

Your logic is flawed.

You are correct. If doesn't matter which loan you pay of first if both of them are with 6.5%. Regardless whichever you pay, you are going to pay same amount of interest for both of them combined. If I were you, I would pay off the one with lower balance as well.

Sometimes it annoying that when you ask an agent to do something and they start advising you what to do. Similar thing happened to me once. Few months back, I was calling all my credit card companies to change my billing date because I wanted to have same billing date for all of them so that I can pay them off on one single day every month. In doing so I was changing billing date for one credit card earlier than it was and representative told me its a bad idea since I will have to pay earlier every month.

[riverwed070707]

Anyone else dealing with a switch to Mohela?

While their service reps are nice, their processes and servicing is a huge PITA. That extra payment I made last month didnt get applied to principal as I requested. Instead they applied it like a regular payment (second one of the month I might add) and then adjusted my auto pay to only cover the additonal amount it would take me to reach a full payment. I thought I was lucky to have caught this today as my autopay goes out tomorrow however the rep tells me it takes two days for them to process any requests. Therefore, they will still only take $40 tomorrow but "don't worry, you can just call back and make a second payment".

I'm not making extra payments anymore. I'm just going to start paying them to myself, save until I have enough to knock out a loan and then make a lump sum payment. Its way too much work to have to call and tell them where my payment will go each month, especially if they aren't even going to actually do it.

Also, "I'm sorry this is troubling but we just acquired a lot of new accounts" is not an excuse for poor service and unreliable processes.

::end rant::