Apparently Not Many People Pay Off Their Student Loans In One Go

John had the money on hand to pay off the rest of his student loans all at once. Lenders don’t seem to get a lot of customers approaching them to do this, since student loan debt generally has lower interest rates than consumer debt. At least we’re guessing that they don’t get very many customers looking to rid themselves of all student loan debt, because they weren’t able to handle the request all that well. At least not without generating a teeny, tiny overpayment.

I was in a position to pay off the remainder of my student loans in the past few weeks, totaling about $8,000 with Direct Loans, and about $4,400 with the Student Assistance Foundation. I inquired to both about their payoff procedures, and they both said that if I paid with a bank account through their website, for the full loan balance (accrued interest since my last payment plus my principal), that payment would serve as a payoff.

A few days apart, I made these final payments. They each took 2-3 days to post to the loan servicers’ website, and to my bank account. Hooray! No more student loans right? Unfortunately this was not the end of the story. When checking the two servicers’ websites, I noticed that I had an ~$1.50 balance with one, and ~$0.50 with the other. My take on this was, I did not owe this money, that I shouldn’t have to pay this remaining two dollars because it is interest that has accrued in the days between my payoff, and the posting of my payment (why it takes 2-3 days for electronic payments to post is still beyond me).

I called Direct Loans first because they were the first people I paid and because I still had a payment pending on their website for my normal monthly payment of $226, and I wanted to see how this remaining $1.50 would be handled. The person I spoke with from Direct Loans said I shouldn’t worry about it, that they write off amounts of less than $5.00, and that I was good to go, and I would receive a paid in full letter in about 90 days.

So, I am satisfied at this point that I am done, they will write off the remaining balance and I’ll be free and clear. Unfortunately, this wasn’t the case. Right on schedule, my full payment for $226 was withdrawn from my account, the ~$1.50 was paid and Direct Loans’ website indicated I was due a refund. So I called Direct Loans back, and they said that I would be refunded the full amount of my payment, but that it would take 4-6 weeks and it would be by paper check (I work away from home for months at a time, paper checks mailed to my PO Box are left to rot for months). They also informed me that if I wanted that paid in full letter, I would have to call back in 90 days and request it, that it was not sent automatically.

This conversation got me wondering about my other servicer, and the payment I had pending with them. So I called them, and they requested that I send them an e-mail to stop my automatic payments, before they also took out a full payment and hand to issue a refund.

This is all very irksome. It seems to me that with our currently level of technology, these servicers would be able to set up their payment systems to recognize when someone had made a full payment, and stop applying interest to your account, and then to also automatically stop payments. Given the amount of money I’ve paid in interest over the years, the least they could do is automatically send me a piece of paper that recognizes I don’t owe them any money anymore.

None of this is a big deal in the over all scheme of things, and their system is probably designed more for the person that makes all 120 [of] their loan payments, but it still bugs me they are going to be sitting on my money for a month, drawing interest, in an age when instantaneous financial transactions are the norm. It seems unfair and asymmetrical to me.

Thanks for listening to me vent.

Funny how banks and lenders can’t get money to flow in the opposite direction from usual without a long delay and a lot of aggravation.


Edit Your Comment

  1. AjariBonten says:

    seriously? and you took how much time at $X/hour to bother writing this?

    • AjariBonten says:

      OK; in KNOW that came across as a bit snarky, but it DOES seem to be a bit of a stretch to see this as a problem …………………

      • Loias supports harsher punishments against corporations says:

        I hope what you mean is that you don’t see this as a problem with worrying, not that it’s not a problem.

        You’d be a fool to this there is no problem here, but whether to say it’s a problem worth troubling yourself over is something else entirely.

        As a counter-point to that, I’d point out in the time it took the OP to write his rant, a programmer could have written the code necessary to resolve the issues he described. I exaggerate, of course, but you see my point. It’s a very one-sided system, and they could absolutely resolve these issues easily and very purposefully do not.

        • Loias supports harsher punishments against corporations says:

          My horrible English aside, hopefully you understand my point.

        • bugpwn says:

          Sounds like a corner case. From what I hear about these systems, it must be easy for stuff like this to slip through the cracks.

          They don’t necessarily have the programmers in-house, nor a maintenance contract. It can take a bunch of lawyers to draw up a contract, which goes through a bunch of executives, all to tell some guy to tweak the rule. Then, hours of paranoid testing later, that change can go live.

          They might be waiting for annoyances like this to pile up before doing any of that. I doubt they take all these (usually smaller) over-payments and take them for a ride. If you take that interest, subtract the CSR wages, accountants’ time, and check-mailing costs, would they break even?

          • mikedt says:

            There are probably lots of bugs in their systems and I’m sure they have programmers on staff. But every time a bug is found it is ranked for severity, probability of it reoccurring and cost to fix vs just working around it. In this case, doing nothing has a lot of benefits for them and not a whole lot of downside.Bugs that cost them money get dealt with first. Bugs that make them money get tossed aside.

      • Kishi says:

        “A company stole $226 from me and says it’ll take them weeks to return it” isn’t a problem?

      • impatientgirl says:

        Even if he got the amount wrong, they shouldn’t debit his account for $226 when the total loan amount is only $1.50.

    • Oh_No84 says:

      The OP is very stupid.
      They always tell you that you have to pay for the days of interest between when you write the check and when the check will actually clear.

      I just paid a student loan completely this year one with a $10K payment, then a $3988.77 payment (which covered the extra few days of interest, this was paid last week).
      On that loan I ended up overpaying about $.10 so I should get some kind of refund, but the loan is closed as I followed the procedure of paying extra money to cover the interest.

      • hansolo247 says:

        Nah, most reasonable institutions write off these amounts.

        A properly running company would give you a payoff amount good for X days, and if their system accrued more interest revenue, it would just debit that and remove it.

      • mikedt says:

        But as the OP points out, why does it take them 2 days to post an electronic transfer? I’m pretty sure it didn’t take 2 days for the money to get into the bank’s account. Isn’t it strange that now with computers doing all our banking just about every transaction time delay falls in the bank’s favor.

        • Coelacanth says:

          Actually, nearly every institution that I know which transfers money around takes about 3 business days for the transaction to settle.

          Not sure what the different steps are involved in an ACH transaction, but there are very few consumer-oriented financial transactions that fully settle next-day.

          Unless it’s a cash instrument, banks will often simply credit the consumer for deposits on a provisional basis, but aren’t required to subject to holding periods.

  2. rookie says:

    when dealing with a banking institution, and when exchanging amounts as great as these, you must ALWAYS deal with a live, and intelligent, human being…

    that is all…

    • Chuft-Captain says:

      It’s a bank. No one highly placed enough to actually deal with this sort of payoff amount properly is intelligent.

  3. howie_in_az says:

    Most (all?) banks will give you a quote that’s good for n days when paying off a loan that should account for any accrued interest during those n days… why did this servicer not do so, or did the OP not request one?

    • YouDidWhatNow? says:

      …because the banks’ representatives told him that just paying the full amount as shown online would do the trick.

  4. speaky2k says:

    Recently I payed off my car loan a few months early, to do this I had to call up and request my current amount owed. When I called them, they told me to make sure I turn off the auto pay feature before making the final payment or there was a chance, depending on when the payments went though, that they would take the auto pay and the payoff amount. When I called them to get the final balance, they stated that as long as the check got to them before a certain date (1 week from the time I called I think) then I would owe nothing more, but if it arrived later than that I would be responsible for the interest accrued.

    • phsiii says:

      Heh, I had to pay off a car, and Kia’s phone rep was smart/kind enough to explain to me that their automated payment system would (a) only accept up to $2K at a crack, and (b) would reject two payments of the same amount. So I had to pay $2000, then $1999, then $1998…until the last payment, which was of course not a round number. But at least it worked, and they released the title. Amazing, though!

  5. Hoss says:

    I hope he didn’t study finance. Geezez.

  6. Blueskylaw says:

    “why it takes 2-3 days for electronic payments to post is still beyond me”

    You know exactly why. When you pay by debit or credit card at a store for items you are purchasing, your money is INSTANTLY GONE. When you pay your credit card bill electronically, it takes 2-3 days to post, giving the credit card company time to collect more interest and to hopefully force people into making “artificially” late payments thereby accruing late charges and the resulting higher interest rates.

    So much for fair play.

    • TuxthePenguin says:

      Conspiracy theory aside, very few things actually post immediately. I can’t think of a single processor that performs real-time processing. I believe the largest (Paymentech or whatever its called today) batches twice a day IIRC.

      • MarkFL says:

        I have paid with a debit card, and within 10 minutes the money was deducted from my bank account (usually classified as a “pending transaction,” but still deducted from my available balance).

        Since it’s not costing me anything, I consider this generally a positive, because if I forget about the transaction and call the bank the next day for my balance, I want to know how much I really have available. If and when I find myself sharing an account with a spouse, this would be even more helpful.

      • samonela says:

        If I pay with my Credit Union debit card at Costco (whether is be for goods or fuel), by the time I get home – 10 minutes max – and can log onto my Online Banking, the money is deducted from my checking account. Not pending. Gone.

      • Coelacanth says:

        Wire-transfers are real-time, but of course, the transaction costs are extremely high.

    • Loias supports harsher punishments against corporations says:

      I’m with Tux, this is not an accurate outlook on what happens.

      The information is send instantly, but it takes 1-3 days to authenticate the data, including authenticating physical checks. Further, the lapse allows businesses to retract mistakes. This has saved my business several times (just from my limited scope in the company) from making erroneous payments and causing a huge hassle.

      That being said, interest should stop accruing as soon as the payment is made. If the payment would be considered invalid, they can easily calculate retro interest accrued.

  7. sn1per420 says:

    “student loan debt generally has lower interest rates than consumer debt”

    What? my student loans (all direct loans serviced by Sallie Mae) had interest rates ranging from 4.8% to 7.9%. I “paid off” my loans in full after graduation using an outside loan which I obtained at 3.8%. Not only were my student loans at a higher rate than what I could get, but they also lacked the basic protections that come with normal loans (student loan debt can’t be written off in the unlikely event I go bankrupt).

    Also, I experienced similar issues when I sent Sallie Mae my lump sum payment. They initially posted the entire payment to my smallest loan, leaving it with a sizable negative balance and my other loans with their full balances. I had to call them multiple times to get it sorted out, and then had to call again to get a payoff letter mailed to me.

    • Loias supports harsher punishments against corporations says:

      Mine is around 1.8% after I consolidated. A few years later my wife consolidated and got a rate 3-4 times as much. A certain point a few years ago the rates rose pretty steeply for consolidation.

      • longfeltwant says:

        Ouch, her rate is between 5.4% and 7.2%? Yeah that is high in these days of low interest. I’m surprised they would be that high.

        I consolidated back in 2003 or so and my rate was, uh, I think 3.2% or something. I thought that was pretty good, but 1.8% is like free money!

    • Republicrat says:

      Compare student loan interest rates with credit card interest rates and get back to me. That’s not even talking about when you miss payments and they jack up your rate to something obscene as punishment.

  8. Milquetoast says:

    “Funny how banks and lenders can’t get money to flow in the opposite direction from usual without a long delay and a lot of aggravation.”

    Not student loan related, but relevant to the quote: some years ago, my employer inadvertently overpaid me by a significant amount via direct deposit. I noticed it immediately and reported it to accounting. Within 24 hours, that extra money — plus the remainder of my paycheck — was gone from my account. I had to wait roughly a week for a paper check for the correct amount to arrive. We can kill tumors with invisible beams, but it takes 7 days and a piece of paper to make some numbers match up.

    • Loias supports harsher punishments against corporations says:

      Your employer likely broke the law for not having your paycheck to you on payday and making you wait a week. Being in payroll, my business would have overnighted you a check as soon as we were told of the error.

      • longfeltwant says:

        Interesting. Yeah, a similar thing happened to my wife. They accidentally deposited the pro-rated annual salary for her entire first year, which was like 7 months’ salary. Sheesh, for about five seconds we thought we were rich! They fixed the problem over the course of a couple days, and at the same time direct deposited the right amount. I don’t think we were ever out any money. We didn’t have to wait for a check. We were fortunate that the snafu didn’t hose our finances.

        When she went in and told them, they hadn’t even realized the error yet.

  9. Torchwood says:

    Note to self: Be sure to turn off auto-pay prior to making final payment. Then, talk to operator about waiving that final $1.50.

    • Hoss says:

      How about just asking for the payoff balance and close the account for good?

    • outbackjohn says:

      Turning off auto pay would have resulted in an increase in the interest rate. A discount is given for having automatic payments set up. It was being paid off, common sense dictates that the automatic payments would stop once the loan is paid off.

  10. dolemite says:

    Interesting how when banks and creditors want money, it seems to be processed overnight electronically, but when refunding money back to customers, it’s always 4-8 weeks and a paper check that may get lost in the mail.

    • MarkFL says:

      This doesn’t just apply when dealing directly with the bank. When I was at my last store, a purchase on a debit card would be deducted immediately. However, if we issued a refund or voided the transaction, it might take several days for the bank to credit it back. (Eventually our system was changed so we couldn’t void debit transactions.) Inevitably the customer would always blame us for supposedly keeping their money, even though it was the bank.

      As a side note, it also meant that if we did a void or refund, the customer might find himself unable to buy anything else, so it sometimes cost us a sale.

  11. JerryLesh says:

    Sorry, consumerist. That last line doesn’t work here…This has nothing to do with banks. This one is all on the gov’t, both federal (Direct Loans) and state (Student Assistance Foundation). With that little clarification, the fact the consumer is dealing with a bureaucrat instead of a banker, it is easy to see how all of this red tape can occur in student lending.

  12. PBallRaven says:

    I can picture the Direct Loans person like the guy in “Animal House”:

    “Hey, you f***ed up! You trusted us!”

  13. outbackjohn says:

    I am in the John in question. I followed the directions both servicers gave me for paying off these loans. I was not really surprised this interest accrued, more annoyed that it lead to me have my money being held hostage, and having to take the time to deal with the servicers to get things resolved.

    SAF required notification in writing 10 days in advance to stop the automatic payments, and the Direct Loans website was so dodgey, I was unable to figure out how to cancel automatic payments.

    I know some think this is snarky and a waste of time to complain about, but my motivation is one of principle. These servicers are quite quick to take our money, and apply late fees or additional charges, yet have little or no incentive to provide good customer service, or have properly functioning websites. Was it only $2? Sure, but it was my $2 dammit.

    BTW, The reason I paid these off in one shot is because I could, and it was the only debt I had that could not be vacated in the event of a bankruptcy, and it is also the highest interest rate debt I had (6.8%).

  14. MrEvil says:

    I always thought reverse mortgages were a plot by my cousin Dr. Evil. After all, Number 2 is in all the ads for them.

  15. lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

    “Right on schedule, my full payment for $226 was withdrawn from my account”.

    There’s your problem: allowing people to make direct debits from your checking account.

    I know it’s a pain, but I schedule the online payment for my parent plus loan every month, manually. The loan company said they could autodebit every month, and give me a .25% reduction in interest rate to do so, but I said no. I don’t want them automatically taking money.

  16. longfeltwant says:

    When I had student loans, I had a monthly automatic billpay set up. (Normally I don’t like auto-payments; this was an exception.) When I suddenly had the money to pay off the full amount, I sent an extra payment for *almost* the full loan amount, bringing the balance down below one month’s payment amount. The next month, the billpay executed for the remainder, and my loan was paid. I did it that way specifically to avoid the pennies nonsense that I assumed could happen.

    My automatic billpay thing was for the billed amount, however, and it sounds like OP’s automatic payment was for a defined amount. So my method wouldn’t work for him.

    $20,000 debt, paid in 10 years, was the best money I ever spent on anything. People who carp about student loans should try the alternative — being without an education. My marginal annual earnings over what I would have earned as a high school graduate is probably $40k or more.

  17. Luweeze says:

    I inherited some money, and the most financially sensible thing was to pay off one of my student loans, so I did. It took three times to get it done, for the same reasons as in the article. Finally, I had it down to 80 cents and worked out the math on what that would appreciate to in the 3 days it took the payment to post, and paid that amount, and it was fine. It obviously wasn’t a lot of money, but it was frustrating that it took so many attempts to get it cleared, especially after all the time it took to figure out how to pay just one loan instead of applying the money across 4 separate student loans with varying interest rates.

  18. RoguePisigit says:

    I did the exact same thing and had the exact same problem with the residual balance — in fact, this article prompted me to see if the dollar or so balance had been written off, and it looks like it has. Guess I’m lucky I never set up an auto-debit.

  19. c_c says:

    Hey I paid off a student loan in full and it went through without a hitch … will you post my anecdote?

  20. Difdi says:

    Simple solution.

    If you are 4-6 weeks short on a loan payment, you get sent to collections, and/or sued.

    What’s good for the goose is good for the gander. I bet they’d take a LOT less than 6 weeks to refund the money they stole from you if the alternative was going to court.

  21. Kestris says:

    When he paid off the loans, why in the world didn’t he go through his bank to stop the automatic payments?!?

    • outbackjohn says:

      The automatic payments were set up through the loan servicer. And they said nothing about needing to stop them following a pay off. The assumption is that you’ve paid off the loans, so the payments should stop automatically.

  22. ConsumeristAlly says:

    I have a lot of loans. I’ve had this issue multiple times with different companies. Yes, it’s a problem. First, the repayment calculations they give you are often wrong: they don’t know how long it will take their own systems to post the amount. I have one company–only one–that, once it receives your money, posts it as though you paid the day you hit the button on the website. The rest try to game you for interest in the meantime.

    Second, I have had the auto-debit problem too. Now I automatically cancel auto debit anytime I repay a loan. And if I have a $0.50 or $1.10 balance on the loan after I make a payment (which has happened), I just pay it and am done with them, forever. It’s not worth the auto-debit + six-week interest-free loan to the student loan company to save my fifty cents or a dollar.

    Could they fix this easily? Absolutely. Most of them are happy to nickel & dime consumers, though, and they have no incentive to change: they can only make money here. Just be glad you’re done paying student loans. Some of us envy that.

  23. joeventura says:

    Here is why you aren’t too bright.

    Everyone with a pulse knows that interest accrues daily.
    That’s why when you call a bank or a car loan place and ask for a payoff they say the amount is good for 10 days. That’s there was of saying we will forget 9 days of interest if you get money here in time.

    Student loans and other loans don’t do that. Interest accrues FOREVER. What? Forever?
    Right forever. If you would have sent the $1.50 the second you found out about it, you would have owed $1.51. Then you send the penny and you owe two pennies.

    Here is the key genius. If you owe $8000, send them $8010. By the time the money arrives and posts they OWE YOU $7.

    Why would you send them a whole $7 more than they need? Because your time, your credit rating and another autodraft from your account is worth the $7 and if you never get it back it was worth it. The bottom line is 90 days later you’d get a check for $7 because they have to balance their books.

    Thus ends the lesson.

  24. botardtim says:

    When will people learn to not use automatic payments. Just take a few minutes each month and go pay all your bills manually, then you do not have to even think about issues like this as being a problem.

    • outbackjohn says:

      Those automatic payments are required to receive and maintain the 0.25% rate reduction on all federal student loans.