After reaching a huge milestone like paying off over $100K in debt, it still pains me to think that the remainder of our debt is all student loans. Our remaining three student loan accounts are all housed by different providers, Navient, Great Lakes, and AES so there are small nuances to each of them that we have to keep in mind. This post will go into more detail on how paid ahead status works, more specifically for loans being paid to Great Lakes.
A few weeks ago I shared how AES was not properly applying my extra payments to my loans and instead of putting me in “PAID AHEAD” status on my IG stories. Not surprisingly, I wasn’t the only one this was happening to, and many of you commented and sent me messages sharing your experience with the whole “PAID AHEAD” debacle. Luckily, I was able to have paid ahead removed from my AES account and now my payments are being credited correctly. Unfortunately for many, it’s not that simple.
What’s the deal with Paid Ahead?
I’ve gotten this question many times, and the answer is that it depends on your situation and your student loan provider whether or not this will be a good or bad thing for you. Like many companies, when you’re paid ahead it means that you either don’t owe a bill for the upcoming month, or your bill will be reduced based upon how much of your extra payment was moved forward. For some, this can be a blessing because it gives them a bit of a reprieve from a monthly bill. For others, who are actively trying to pay off their loans as fast as possible this causes a huge issue, as the money isn’t being allocated to the principal balance.
Two Ways and Extra Payment Can Be Allocated
Being paid ahead can hurt you in ways that you may not even notice. As I’ve said a million times before YOUR STUDENT LOANS ACCRUE INTEREST DAILY. They accrue interest daily on your principal balance.
Let say your balance is $3025 and your minimum payment is $100. You decided to pay $150 this month. Of that $150, $25 went to satisfy accrued interest (which is always satisfied first), and $75 went towards your principal bringing your total balance down to $2925.
You now have $50 remaining. If this money were put towards you being “paid ahead” it would mean your next month’s bill would be $50 instead of $100. Your balance moving forward is $2925, and you will accrue interest on the $2925.
If the money went directly towards the remaining principal balance instead of being put in “paid ahead” your principal balance would decrease to $2875, and you would only accrue interest on that $2875. Meaning the amount of interest (basically free money you’re giving to the government) would be lower.
After my situation with AES, I decided to do a lot more research, on the whole, Paid ahead status with the loan companies I deal with. From experience, I can tell you this
Navient (Not Sallie Mae): extra payments directly applied to principle, no paid ahead status
AES: extra payments applied to paid ahead unless you specifically ask for that status to be removed from your loans
Great Lakes: Depends on your payment preferences (see below)
My Great Lakes student loan, the one we’ve been actively paying that started with at $88,000 balance went into repayment at the beginning of this month. Before then I was able to make extra payments and choose which loan I wanted my extra payment applied to without ever worrying about paid ahead status.
Now that we are in repayment with my first bill being due December 26 I decided to test out a few hypothesis to see if these loans would be affected by Paid ahead since we are in repayment.
Before we get into that, there are some important things that one needs to understand concerning how you can make a payment to Great Lakes. First, you can set an excessive payment preference, by going to the payment tab. Once there you can choose one of two options:
Standard Allocation: Once scheduled monthly payment and all outstanding interest have been paid, the excess will be applied to the loan with the highest interest rate, thus costing you less interest over time.
Custom Allocation: Once scheduled monthly payment has been paid, the excess will be applied to the specific loans of your choosing.
- You set manually.
This is how I’ve always set up where I want my extra payments to go. Since we have not consolidated our loans, I can choose which loan I want my extra payment to go to. I choose a CUSTOM ALLOCATION when making extra payments. You can divide up the extra payment among several loans are choose just one. Since we are focusing on paying off one loan at a time I put 100% in the box for that loan.
The weird thing about Great Lakes is that it also lets you set this “Excessive Payment Preference” when you’re making a regular payment from the home screen.
Ignore all the “paid ahead” information as we’ll get that to that in a bit. Let’s make a payment on my $30,923 balance.
Notice, that I am making a payment of $20.00 to my loan. When doing so, I am also asked: “Are you Paying Extra.”
Since I’ve already set my EXCESSIVE PAYMENT PREFERENCE to custom Allocation it doesn’t matter if I choose yes because my preference is already in the system. However, if you have not set you Excessive Payment Preference, it will automatically default to Standard Allocation regardless of what you choose moving forward.
YOU HAVE TO SET AN EXCESSIVE PAYMENT PREFERENCE MANUALLY BEFORE MAKING ANY PAYMENTS.
Just to recap before moving forward.
- You have to set up your excessive payment preference manually for your extra payments to go to the loan of your choice BEFORE you make your payment
- If you have not chosen an excessive payment preference, doing so while making your payment will not override the current settings. If it is previously set for Standard, it will default to the standard regardless of what you choose while making a payment
Okay, so now let’s discuss this paid ahead status with Great Lakes.
As you’ve probably noticed above it says that I am paid ahead until 01/26/2018. Based on what Great Lakes considers “Paid Ahead” this is true.
With my loan being in repayment my minimum payments every month for the next two years are $246.84. I hypothesized that if I paid extra on my minimum payment using “STANDARD ALLOCATION,” it would go into paid ahead status.
To test this, I set my payment preference for custom allocation and I paid an extra $2.00 with my payment bringing my payment total to $248.84.
As you can see I am now paid ahead by $2.00 thus proving this hypothesis correct.
I then decided to test my next theory. I hypothesized that if I set my excessive payment preference to Custom Allocation, and choose to put 100% towards one loan, then the payment would be applied directly to that loan principal and would not just sit in paid ahead status.
I scheduled an extra payment of $20 to go towards the loan with a balance of $6,678.00. When the payment was applied, I noticed something interesting. Instead of being paid ahead by only $2.00, I was now paid ahead by $22.00! I then checked to see how may payment was allocated and sure enough the extra $20.00 was applied to the accrued interest and principal of the loan I specified.
By doing these test, I feel that I have a complete understanding of how Great Lakes sets their version paid ahead status. Again, this based on using the steps I listed above. With Great Lakes Paid ahead is an option and does not take away from your extra payment going towards your principal. By manually setting my excessive payment preference before making my extra payment I was able to target a specific loan and if I want, take advantage of the option to not owe as much on next months bill.
I feel comfortable moving forward with my extra payments now that I’ve seen how my payment is allocated.
If you do not have the options that I’ve shared above, call Great Lakes and inquire as to what needs to be done so that you can make extra payments towards the principal of your loans. Whatever they tell you, ask for that to be sent to you in writing before making any payments.
If you’ve been dealing with “Paid Ahead” status on your loans, share your story in the comments below for others who may be dealing with the same student loan provider.
Other Great Student Loan Post to Read from Broke on Purpose®
Why You Should Start Paying The Interest Immediately on Your Student Loans