Some student loans borrowers who are trying to get free of debt sooner by paying a little extra each month or making a lump sum payment toward the principal are discovering that companies servicing their loans are making it harder to save money on interest charges.
The Washington, D.C.-based Consumer Financial Protection Bureau recently expressed concern over a practice used by student loan servicers known as “redisclosure” of payment terms. Redisclosure causes a borrower’s monthly bill to fall when extra payments are made.
After the monthly payment amount is reduced, the term of the loan is extended and the borrower could end up paying more interest over time if he or she only pays the lower minimum amount due.
For example, a borrower could start out owing $25,000 in student...