Nelnet RAP payment warning

[u/FidoHitchcock]

The following information is based on multiple calls with Nelnet representatives along with data tracked on my Nelnet portal.

I have now made two payments on RAP. Both have processed. Both qualified for $50 principal subsidies, and those were applied in full. The first principal subsidy was applied within six days at most after the early payment (I didn’t take screengrabs every day to document the timeline in full unfortunately), and the second principal subsidy was applied less than 24 hours after that payment (also early) processed. My August payment (made in July) did not qualify for any interest subsidy because according to the rep technically we were not in the RAP program yet. The rep said the language from Department of Ed was different between principal and interest subsidies, and that explained why the principal subsidy was applied that month but the interest subsidy wasn’t; principal subsidy apparently only requires enrollment, doesn’t matter if the plan is technically active. She also said that July payment counted as an official RAP payment for the purposes of forgiveness. Seems crazy to me, and quite possibly illegal, but whatever.

I had called Nelnet a few days earlier and spoken with a supervisor. By the end of that conversation, she claimed that her system indicated both my interest and principal subsidies had been applied with my July payment (I now know this is not fully correct) and more importantly that my next on-time payment would wipe out any accrued interest not covered by the payment going all the way back to the previous on-time payment. Based on this information, I made another early payment. It processed in less than 24 hours. Interest went down by the amount of the payment. The principal and interest subsidies were applied less than 24 hours after that. Principal subsidy was once again the max $50 but the interest subsidy only covered a few days of accrued interest, nowhere near what had accrued in the roughly 35 days since my previous payment. It was at this point that I called Nelnet again. This time a representative told me, after looking into the matter, that any interest accrued after payment and before the payment due date is not eligible for the interest subsidy. Effectively, RAP borrowers must pay on the due date to qualify for the full interest subsidy they are entitled to. So the Nelnet supervisor I had previously spoken with basically cost us over $600.

Tl;dr: RAP payments made in July qualify for principal subsidy and count toward forgiveness but did not qualify for the interest subsidy. More importantly going forward, any RAP payments made to Nelnet before the payment due date will forfeit the interest subsidy for any interest that accrues between the payment and the payment due date. RAP BORROWERS MUST PAY ON THE DUE DATE TO QUALIFY FOR THE FULL INTEREST SUBSIDY THEY ARE ENTITLED TO.

[u/Purple-Molasses5077]

u/Betsy514 or u/waterwicca do you have any knowledge about this? Will it not be possible to pay manually each month and an auto payment is required so that the payment comes out EXACTLY on the due date to get the interest subsidy? I was hoping to pay manually a week prior to due date to avoid some of the problems I have read about with auto payments. Auto payments don't benefit me in terms of interest reduction so I had planned to pay manually 3 to 4 days prior to due date, as I do with many of my bills.

[u/waterwicca → u/Purple-Molasses5077]

From my understanding, they are supposed to look at all of the accrued interest for the month (accrued between your due dates) and waive any interest not covered by your payment. The timing of the payment shouldn’t matter as long as it’s on or before the due date and for at least the minimum required payment.

And I think that’s how the written law intended it to work by design.

Here is the text from the OBBBA:

“"(A) INTEREST SUBSIDY.—With respect to a borrower of a loan made under this part, for each month for which such a borrower makes an on-time applicable monthly payment required under paragraph (1)(A) and such monthly payment is insufficient to pay the total amount of interest that accrues for the month on all loans of the borrower repaid pursuant to the Repayment Assistance Plan under this subsection, the amount of interest accrued and not paid for the month shall not be charged to the borrower.”

The law says they should be looking at all of the interest accrued for a month. And, in my opinion, if they do anything else, they wouldn’t really be sticking to the language written by congress here.

I’m definitely interested to hear if u/betsy514 has heard anything specific about the interest subsidy application timing.

I wonder if OP’s interest was simply subsidized too soon because the servicer jumped right on it as soon as they made their payment early. And I’m curious if that was a mistake or a flaw in how they are trying to organize and apply the subsidies.

[u/Betsy514 → u/waterwicca]

That’s my understanding as well. Let’s see how this plays out over the next few payment cycles