Question:
I have been out of school for 6 years. I recently ordered a copy of my payment history from Sallie Mae, the company who I have consolidated student loans through. To my dismay, I discovered that while I have been making payments of $400 per month to Sallie Mae that only about $5.00 has been applied toward paying down my principal each month.

The net actual effect has been that I have paid over $15,000 to Sallie Mae over the last four years, with only $670 being applied by Sallie Mae to my account toward principal reduction. This principal reduction represents a paltry 4% of my payments. A representative from my loan Guarantee Corporation (they oversee Sallie Mae) today candidly shared with me that this Sallie Mae practice was a hidden illegal and unethical *usury device* that is being deployed by Sallie Mae on unsuspecting student loan consolidators at the time of their loan consolidation payment plan selection.

When I recently questioned Sallie Mae they claimed I signed-up something called their Max-4 program about 4 years ago. At the time that they claim I signed-up for Max-4, I recall them stating that Max-4 would "reduce principal while lowering the monthly payment." In fact the principal reduction only occurs in the last chunk of the 25-year loan something which was never disclosed by the Sallie Mae representative at the time-who indeed acted to mislead me-I am sure she was reading a script written by Sallie Mae's marketing department. I am currently seeking anyone with a similar story about: payments being higher than promised by a Sallie Mae representative, or principal amounts that will not go down as you pay Sallie Mae month by month. In exchange, I will respond e-mail you with the steps necessary to locate and receive remedy from the appropriate Guarantee Student Loan Corporation in the state that you have your loan in.

Guarantee Student Loan Corporations regulate the actions and practice of Sallie Mae on a state-by-state basis. I am currently writing out the steps to share them freely with anyone in a similar situation. I am a fellow former collage student who is learning the hard way. I hope this helps others before they give Sallie Mae their next $15,000 only to find their principal only decreased by $673, as I did.

Answer:
It sounds to me like you may be on a standard amortization schedule. When we bought our house on a 15-year mortgage, the principal repayment started at about 6% of the monthly payment and gradually increased. Your consolidation has a longer term, and it would not be awry to repay principal starting at something like 4% due to the longer term. It would be extremely interesting to know the details of your loan, and also the marketing representations which were made to you. His loan was $53,000 at 9%. I checked a standard amortization chart. $53,000 for 25 years at 9% fixed rate has monthly payments of $444.77.

In 48 months principal would have decreased by $2,719. If thepayment plan was a standard plan and his principal went down only $670 in four years, he'd have a real gripe. But he only paid $400 per month, not $444.77. Max 4 is not a standard plan. According to the Salliemae website "MAX-4 allows up to four years of interest-only payments, followed by annual step-ups and level payments starting in year seven. Keep in mind that reduced payments will increase the total loan cost-when the principal is repaid more slowly, more interest accumulates before the loan is paid off. Partial or full prepayment is allowed at any time without penalty."

So payments have mostly been paying just the interest. At the end of 4 years the monthly payment will begin going up in graduated steps until year seven when it will become fixed. Sorr , but your story illustrates the need to understand what you are signing up for. I'd guess you didn't major in finance. You accepted smaller payments than normal and have to pay for it in greater interest. You pay for what you borrow, and the less you pay each month the less applies to principal. The "good" news is that your monthly payment will be going up shortly and more of it will apply to principal. You can also accelerate reduction in principal by paying more than the required payment each month, or even sending in a lump sum tagged for application to principal.

I think your phrase "the need to understand what you are signing up for." is paramount. My point is that Sallie Mae self-servingly refuses to provide amortization schedules, never discloses the percent of payments that reduce principal up-front under any of their plans and then uses slick telemarketing to glaze over the truth. Their contracts do not disclose percentages going to reduce principal so the only *understanding* most students wind up receiving is one after they have paid thousands and the damage is done.. Now you are going to tell me I didn't do enough research, right? Guess what, there are thousands of students right now who have been sold this program by Sallie Mae, a private for-profit corporation who's used similar tactics of non-disclosure, The point is simply that the buyer cannot beware when the seller refuses to provide such, Loan Industry Standard disclosure, such as amortization tables showing actual contributions to principal and interest up-front for the life of the loan.