Why did I not get any credit for payments I've made on my student loans?

Question

Ok, so I fell into hard times and my student loans went to a collection company.  I retrieved the phone number from my credit report and called them.  It was Windham Professionals who I contacted.  They told me that I was not far behind and set me up on a payment plan. After I made an initial payment of $1114 on a balance of $9821 with 2.48% interest rate, I continued to make automatic payments of $110 per month for the last 8 months equaling another $880.  So I've made a grand total of $1994 payments so far on my loans.  Now that I have been current for 6 months straight, the loans came out of late status and they were handed back to a company called ACS.  Now I'm supposed to make the same payments to them with the same interest rate, only my balance is now $9590.  So it looks like I have only paid a total of $231 of my loans instead of $1994.  What is going on here?  Am I being ripped off seriously???

Anonymous · Accepted Answer

When you go into default on student loans, the company has the right to attach all kinds of fees and possibly hike the interest rate on your loans.

This means when you make a payment of 100 dollars, then 90 of it is going towards the interest and only 10 dollars of it is being used to pay down the principle (The amount you borrowed).

So after a year of payments like these, the balance you owed would only have gone down by 120 dollars (10 dollars a month times 12 months) despite the fact that you actually PAID 1200 dollars.

Sounds like those fees are killing you.  But that is what happens when you allow your loans to go into default.. the lender has those terms written out in your loan agreement so they are all legal to do so and you can't do a darn thing about it.

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Why did I not get any credit for payments I've made on my student loans?

1 Answer