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I had a school loan that was handled by EdFinancial. I had made monthly payments on this until there was just about 12 cents of debt left.

[Update:] The payments were a flat amount each month (of something like $50/month because the total debt was not very large). I did not pay the loan of early but just continued on the payment plan for years until the debt got down to the 12 cents.

I am not sure why the payments had not been sized to cover the debt evenly, but perhaps that was not possible because of the accruing interest...

Anyway, my question is about that once the debt was down to 12 cents, the company started charging me 1 cent per month instead of e.g. the entire 12 cents all at once. I had to call them to make the final payment in full.

What is the reason for this sort of system? Where they hoping that they might be able to get me to default if I don't have enough money on the account?

  • Were your loan payments identical every month, or did they periodically recalculate your loan payments based on your loan amount? Did you always pay exactly (to the cent) the loan amount? Did you have a fixed, or variable, rate? – Joe Jan 11 '17 at 22:37
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    Did you pay the loan early at all? – Nathan L Jan 11 '17 at 23:01
  • @NathanL That was my guess too. Probably the system divides the balance by the number of months left on the loan. – ventsyv Jan 11 '17 at 23:03
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    Or the software simply has a bug for a rare edge case that the OP ran into. I don't think this question is really answerable as written. – Nathan L Jan 11 '17 at 23:04
  • I owned one share of a stock, worth about $10, so the 9.95 commission would have taken it all. So I let the broker send me the .10 dividend check every quarter. And annual report. And tax forms. After 10 years, the company was taken over, and I got a check for the share value. – JoeTaxpayer Jan 12 '17 at 0:30
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First of all any loan will have the last payment be slightly different than the rest. Even if the interest rate is zero it is hard to have a perfect monthly payment amount. By perfect I mean the amount of the loan divided by the number of months would be $ddd.cc0000...

When looking at the amortization table the last payment will either be slightly higher or lower to adjust for the rounding that was done.

My suspicion is that the rounding would have resulted in a left over 12 cents. It is also possible that you are paying it off slightly early and the computer is simply taking the leftover amount an spreading it over the remaining period of the loan. You could be paying it early because for the main part of the loan was paid to a company that rounds all payments to the higher dollar, or has a minimum monthly payment amount.

I looked at the company you mentioned in the question, and searched the site for an amortization tool. I found it, and used the pre-filled in example.

https://www.edfinancial.com/amortizationschedule?pmts=120&intr=6.8&prin=25000

Pmt #   Payment   Principal / Interest   Principal *
        Amount    Paid        Paid       Balance

1       $287.70   $146.03   / $141.67    $24,853.97
2       $287.70   $146.86   / $140.84    $24,707.11
...
118     $287.70   $282.86   /   $4.84       $570.67
119     $287.70   $284.47   /   $3.23       $286.20
120     $287.82   $286.20   /   $1.62         $0.00
* Principal balance includes interest accrued

If that last payment is not adjusted the borrower will still owe $0.12. The fact it equals your situation is a coincidence. But is does show what can happen.

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I think this has to do with the fact that the interest is charged to your balance and grows everyday. As a result, the computer broke it down so that it can capitalize on that remaining balance. If your regular student loan payment was $500 a month at 5% interest, but your balance became $499, spreading out the $499, they can make more money off you. It might not be a lot, or in your case essentially 0, but it could be better than nothing.

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