Consumer complaint received 2018-04-12
Product: Student loan — Federal student loan servicing
Issue: Dealing with your lender or servicer — Trouble with how payments are being handled
Company: Nelnet, Inc. (TX)

I logged into my Nelnet account today to this notice : At the end of XX/XX/XXXX, we changed how payments are allocated to help you pay down your loan ( s ) with the highest interest rate more quickly when you pay more than the current amount due. Get more details at Nelnet.comXXXX 

The relevant new section is here : Unless you direct your payment to an individual loan or group, the standard allocation method is as follows. After your current amount due is paid, payments are allocated across loans in repayment status starting with the highest interest rate. Once the loans in repayment status with the highest interest rate are paid in full, any remaining payment amount will be allocated across the loans with the next highest interest rate. If two or more loans in repayment status have the same highest interest rate, the payment will be allocated first to the unsubsidized loans and then to the subsidized loans, in proportion to each loans regular monthly payment amount. 

When you pay more than your current amount due, your due date on loan groups in repayment status will advance by one month each time you satisfy the regular monthly payment amount for that group. Your monthly billing statement will show {$0.00} due for that loan group. 

Since your excess payment will continue to be applied to the loan group starting with the highest interest rate, you will continue to have an amount due for loan groups with lower interest rates. ** You have the option to request that we not advance your due date when you pay more than your current amount due. See Special Payment Instructions for more information. 
If you want your excess payment to continue to advance the due date of all of your loan groups in repayment status, you can direct your excess payments to all loan groups in repayment status, instead of targeting the loan group ( s ) with the highest interest rate, as a one-time or recurring special payment instruction. This will help keep the due dates for all loan groups aligned. 

My loans are in a graduated repayment plan, and I have already paid about 60 % of the balance of the loans in interest alone. Currently, I am attempting complete payoff, so I am ahead of my loan schedule by making monthly over payments. In my situation, Nelnet is using this new calculation method to capitalize interest on my larger loan balance while paying principle down on my smaller loan balance. The net result is that over the course of the loan, I will pay more total interest due to compounding the outstanding interest into the balance of the larger loan. In XX/XX/XXXX, approximately {$50.00} in interest was capitalized into my outstanding balance on my larger loan even though my payment was more than sufficient to cover the interest on both of my loans and pay down principal. In order to stop this compounding from occurring, individual users must " opt out '' of the new payment policy if they find themselves in similar circumstances. I have contacted Nelnet to personally opt out, but this practice is predatory.