Auto-debit can be a great way to stay on top of your student loan payments, especially when you are dealing with multiple lenders or servicers, each with their own separate monthly bills. You link your student loan accounts with your checking account, and the payments take care of themselves, automatically. Good deal.
But be careful. Auto-debit can lead to problems if you’re not paying attention.
The Good. Ultimately, the goal of auto-debit is to make sure that payments are made on time. This benefits both the lender (who wants your money) and the borrower (who doesn’t want to miss a payment and get hit by late fees and a damaged credit report). For the most part, auto-debit works well for people, particularly those who find it challenging to have to keep track of multiple monthly bill obligations.
The Bad. As with any program of any kind in any context, auto-debit is not perfect and there can be problems. Sometimes a payment will not go through; this could be because of an issue with your bank, or with the loan servicing company. Sometimes, the wrong amount may be debited—either not enough, or too much. This is especially true when borrowers are on some sort of time-limited repayment plan (such as Income-Based Repayment (IBR)) that ends unless the borrower re-applies or affirmatively contacts the loan servicer.
The Ugly. If you’re not paying attention and a change or an error occurs, things can get messy. If there’s a problem with the auto-debt that prevents payments from going through, you will get hit by late fees and a nasty mark on your credit report, even if it wasn’t your fault. You may even default on your loan, which is serious business. If you don’t check in with you student loan account, and you don’t notice a change in your payment amount, you could have a massive payment deducted from your checking account after the fact. This happened to many borrowers last year who did not re-certify their income for the Income-Based Repayment (IBR) program.
Bottom Line. Overall, I think auto-debit is helpful for people. But it is not an excuse to be asleep at the wheel. Failure to regularly monitor your account can lead to pretty serious consequences if there are unnoticed changes or problems, and it can be very difficult to correct these issues after-the-fact. So if you’re going to get on auto-debt, make it a habit to regularly check your student loan account and bank account to be sure everything is properly functioning.