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Auto-Debit: the Good, the Bad, and the Ugly

February 5, 2014 | Adam S. Minsky, Esq. Income-Based Repayment

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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.

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Income-Based Repayment

About Adam S. Minsky, Esq.

Adam S. Minsky founded the first law office in Massachusetts devoted entirely to assisting student loan borrowers, and he is one of the only attorneys in the country practicing in this area of law. He provides counsel, legal assistance, and direct advocacy for borrowers on a variety of student loan-related matters. He regularly speaks to students, graduates, and advocates about the latest developments in higher education financing.

Books by Adam S. Minsky

The Student Loan Handbook for Law Students and Attorneys

The Student Loan Handbook for Law Students and Attorneys

Student Loan Debt 101

Student Loan Debt 101: The Definitive Guide to Understanding and Managing Your Student Loans

Student Loans for Parents and Cosigners

The Student Loan Guide for Parents and Cosigners

617-936-2788
asminsky@minsky-law.com
By Appointment Only 265 Franklin Street, Suite 1702
Boston, MA 02110

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