[SaintThomas]

I have a loan application/promissory note for a new private student loan for which I selected a "Pay only interest while in school" option. After being approved and receiving the money, and waiting 3 months for a payment schedule, I now find out that the loan company instead set up a "Defer principal and interest payment" method. They are now capitalizing my loan and the principal is increasing. They have told me over the phone they will "request" a change but gave no promise that they will honor the terms in my original application/promissory note. And the principal has already increased. What recourse do I have if they refuse to honor the terms in my note?

State: Texas

[seniorjudge]

Okay, what EXACTLY does it say on the promissory note (not the application)?

Are you allowed to prepay?

[SaintThomas]

The loan application/promissory note is a single form that I signed. There are three boxes under "Repayment options": "Defer principal and interest while in school", "Pay principal and interest while in school", and "Pay only interest while in school". I checked "Pay only interest while in school". The lender ackowledges that they received the form with that box checked.

The note also states "I agree that I cannot change the repayment option indicated on page 1 once you fund my loan and disburse the funds to me...I will let you know that I agree to the terms of the loan as set forth in this Promissory Note and in the Disclosure Statement by doing either of the following: a) deposit the check; or b) using or allowing the loan proceeds to be used on my behalf without objection."

It also states "If I have elected the "pay only interest while in school" option (as stated on the first page of this Promissory Note), then interest payments will begin no more than 60 days after the Disbursement Date."

The fact is that no where does the paperwork, including the Disclosure Statement, show the change from "pay only interest while in school". The lender states that page 1 of the Note will determine the repayment method.

There is no prepayment penalty.

[Mr. Knowitall]

If I follow Sr. Judge, he seems to be suggesting that the mistake has no material impact on you, as if there is no prepayment penalty you should be able to voluntarily pay the interest now, which would keep it from being capitalized and keep your loan balance where it is supposed to be.

But still, it would be nice if they corrected their error....