Written By Bethany McCamish
Paying extra on your student loans seems like sound advice. The more you pay down a loan, the sooner you’re out from underneath its burden. However, there’s one case where paying extra on student loans can be a big mistake.
When student loan overpayment is a problem
You’ve likely heard of Public Service Loan Forgiveness (PSLF) if you have student loans. This federal student loan forgiveness program is a cornerstone option for many who pursue careers serving others in their community.
PSLF, along with most forgiveness programs, operates with stringent requirements. One such requirement is the number of qualifying payments you must make. You’re required to make 120 qualifying payments on your student loans. Qualifying payments don’t need to be made consecutively, but if they’re made in the full amount each month, it will take 10 years to reach full loan forgiveness.
But making an extra payment on PSLF student loans can be a mistake. Paying ahead won’t get you to the point of forgiveness any sooner. In fact, pay ahead status elongates the amount of time it takes to receive forgiveness.
Why paying extra on student loans with PSLF doesn’t work
If you’ve made extra payments, even by a few dollars, your account will be marked as “paid ahead.” Here’s an example of what that may look like.
Let’s say your regular qualifying monthly payment is $300. This payment has processed, and you decide to make an extra payment of $200 that month. The account can be marked as “paid ahead.” The next automatic monthly payment will then be taken out for $100. Meaning the next month's payment is less than the monthly payment due and won’t count as a qualifying payment toward your PSLF plan.
The loan servicers make money based on the length of time they service your loan. Thus, they have no incentive to help you pay the loan off faster. This is why the “paid ahead status” is automatic rather than being a request.
The team at Student Loan Planner® has run across this very scenario a number of times in consultations. One reader wrote in that they switched to PSLF after two years of making on-time payments with FedLoan Servicing. But once they sent in the proper verification, FedLoan showed only four qualified payments for those two years, despite the reader being on a qualifying payment plan. Since the reader made extra payments during this time, their account was placed on “paid ahead status.”
Not only is paying ahead messing up your number of required payments, it’s also taking money out of your pocket that would otherwise be forgiven. It may feel like a smart choice in case PSLF goes away. However, doing so really won’t help you in the long run if your account is marked as paid ahead. Don’t make the extra payments — just stay the course.
If you’ve paid ahead, this is something you’ll want to correct as soon as possible.
How to correct paid ahead status under PSLF
The good news is that you can stop making extra student loan payments. You’ll want to correct the pay ahead status so you can get back on track.
First, it’s a good idea to check and see how many qualifying payments you’ve made. You can check the number of payments by logging into your account and clicking on the details of each loan. If you’re already enrolled in PSLF, you’ll be logging into FedLoan Servicing.
Next, if you’ve set up automatic extra payments on your student loans, cancel this while you’re logged into your account.
Then, if you’re marked as paid ahead status, you’ll need to make some phone calls and get this corrected. Begin by calling your student loan servicer and asking to make the payments count toward PSLF.
Know which payments they are and have your records in front of you when you make the phone call. You must also ask your servicer to put a note on your account so you’ll never be put on “paid ahead status” again.
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What to do if you have trouble resolving the paid ahead status
You may hit a brick wall with your student loan servicer. It will then be up to you to keep advocating for yourself and move up the chain.
You can start by calling the parent company. In the case of FedLoan Servicing, this is the Pennsylvania Higher Education Assistance Agency (PHEAA). In each of these phone calls, ask to speak to a borrower advocate.
Your student loan servicer can fix this, but if it doesn’t, you should file a report with the Consumer Financial Protection Bureau (CFPB). In the past, the CFPB has been very helpful in these types of situations.
If you enter into a dispute or the problem goes unresolved for some time, you can reach out to a student loan lawyer for assistance.
Don’t forget: Continue making your qualifying monthly payments and following up. Dealing with a situation like this can be draining, but the student loan forgiveness that PSLF offers can be worth it.
Keep track of your PSLF status and seek help
Student loan forgiveness requires some effort and follow-up in the form of paperwork and tracking. Once you correct the pay ahead status, keep track of your PSLF progress. Student loan servicers make mistakes, so it's important to advocate for yourself and seek help when needed.
You may want to consider scheduling a consultation with a professional on the team at Student Loan Planner®. We can assist you in reviewing your loan status and developing a payoff plan that allows you to reach your life goals.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
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Great, detailed reporting, and great piece!
There’s another problem with paying ahead on student loans: If you think you’ve ‘paid ahead’ and then skip a payment, it resets your 36 to 48-month consecutive payment counter to zero. That means with many servicers, you can’t drop your cosigner, until you meet that 36 to 48-month consecutive payment requirement, and you’ll have to start from scratch.
Navient got in some hot water over the practice of letting people pay ahead, and then telling them they can take a “payment holiday.”
I wrote up the issue here:
https://blog.loangifting.com/how-to-drop-your-co-signer-from-your-student-loan/
The only major lender I’m aware of that lets you “pay ahead” to meet payment requirements is SunTrust.
That’s great information thanks for sharing Jason.
Here’s another little nugget for you that can happen without ANY type of action from the borrower. In the beginning of November 2019, I received an email notice telling me a forbearance had been approved and applied to my Fedloan account effective for Nov. The issue is that I NEVER requested one. When I contacted Fedloan, they stated that some type of natural disaster had occurred in my area and that due to this they automatically processed it. On the surface, this seems like a decent thing to do but there was NO such disaster in my area. I immediately contacted Fedloan and instructed them to REMOVE the forbearance since I never requested such an action and since I had already made my November payment. Secondly, to do so without reaching out to the borrower to confirm that such an action might be warranted, this can have the “Paid Ahead” status effect to the account. Sure enough, THIS just happened to me. I just received a notice stating that my account is now in a Paid Ahead status for November and December, and since I have made both payments it screws up my PSLF. I have already contacted FedLoan and instructed them to remove the status and to credit my November and December payments as regular ones.
The servicer will do whatever they can to prolong the payment situation and keep from giving the borrower the opportunity to apply for anything in PSLF. Please warn folks to stay vigilant on their accounts, especially if they are in PSLF situation.
Wow I’ve heard of that before. But it’s still crazy when I hear that happening.
Special situation here:
Dentist working for federal clinic, working on PSLF.
I can get 20-30k in loan repayment to be used for student loans.
20k – my 28.6% tax bracket would be 14280 after my taxes are taken out of the LRP.
This is adequate to cover my 985$ minimum payment.
I could approach this one of 2 ways:
#1- Make minimum payments and put the leftover $$s toward the highest interest loan.
#2- Pay 1,190 toward them each month.
Either way I would essentially end up in paid ahead status, however– I have to use this money toward loans within the given year. I’m planning to essentially use LRP to pay the principal balance until I reach the 120 payments of PSLF.
What are your recommendations?