I was listening to Dave Ramsey while doing some work the other day and a student loan issue came up so I perked my ears. Now I typically agree with Dave 100% but on this answer he was a little misguided. Not his advice per se but the information he was basing it on.
Before I flush out the situation, let me say as well I would have thought the same thing prior to my working for a student loan company but since I have a benefit most don’t, let me explain the situation that may seem counter intuitive.
A borrower was stating that she attempted to pay off one of her two loans in full. When she sent the payment in, she did so with a note saying how it was to be applied. After it was misapplied, she called in and was told it could not go to just one loan as it was a consolidation loan. She proceeded to talk to a manager who said he could over ride it but it was not a typical policy, so on and so forth and what have you.
The opinion of both the borrower and the radio host was this did not make sense as if it was truly a consolidation loan it would be one loan not two and that the loan servicer was just “making up rules” (this was also said as it was stated it could not be put in writing, which was kinda stupid).
Anyway here is what happened:
A consolidation loan for your student loans is one loan. When you consolidate you combine both your subsidized and unsubsidized loans into a single loan. This loan is neither subsidized nor unsubsidized.
However when a subsidized loan is taken out, the government commits to paying the interest while in school, sometimes in grace, and during a deferment for the life of the loan. This stands true even when its “paid off” through a government consolidation.
So what is done is for bookkeeping purposes it shows as two loans by separating out the subsidized and unsubsidized portions. So as a result the whole consolidation loan may be for $40,000 but show as $30,000 Unsubsidized and $10,000 Subsidized.
Here is why this is important:
Let us say the borrower is going back to school and qualifies for an In-School Deferment. During this deferment the government pays the interest on subsidized loans. If it was not known which was which, this benefit could not be properly assessed.
Now back to the question. Can you pay just one part of a consolidation loan?
Initially no and once applied yes.
Because it is one loan the system will usually not let you do it online through a payment targeting. However once the payment has posted you can request a reapplication to go towards just one part of the consolidation. Remember the minimum payment of each part of the consolidation must be satisfied to keep from delinquency occurring.
I understanding in this case why both the host and caller were confused and hopefully this clears it up!
Let an experienced loan counselor help you achieve student loan success!