I asked Nelnet about the Kwikpay discount and they said it still exists. They wrote: "The borrower will be disqualified for the benefit if two ACH payments reject within a 12 month consecutive period. The benefit can be reinstated if the borrower makes six consecutive on-time payments using a method other than auto-debit and reapplies for Kwikpay."

Did you have problems with any of the auto-debit payments recently?

The 0.25% interest rate reduction is usually not part of the promissory note, but a separate discount subject to a set of terms and conditions and also subject to potential cancellation. So technically your interest rate has always been 5.5%, but with a 0.25% discount for the auto-debit.

According to the Nelnet brochure on Kwikpay, http://www.nelnet.net/forms/pdfs/Kwikpay.pdf, if a borrower has two occurrences of insufficient funds in a twelve-month period, Kwikpay will be terminated. The brochure doesn't mention any other circumstances under which the benefit can be terminated.

While lenders usually do reserve the right to cancel loan discounts at any time (and many have, due to the economy), I have not heard of Nelnet doing this. In fact, most lenders still offer a 0.25% interest rate reduction for auto-debit because a similar benefit is offered by the US Department of Education for loans in the Direct Loan program.

I will look into this further.

Please provide more details. Nelnet is an education lender offering both federal and private student loans. Since July 1, 2006, new federal education loans have had fixed rates. Private student loans generally have variable rates.

What type of loan is this, what was the old rate and the new rate, and what are the circumstances surrounding the change?

Hi Mark,

Here's the story:

I took out around $40K in two federally-backed school loans for graduate business school from 1999-2001. In 2003, I thought rates were pretty good at 5.5% and Nelnet was offering a .25% (quarter point) reduction for the life of the loan as incentive to sign up for something called "kwikpay" online (basically an auto-draft directly from my account each month).

So I consolidated them at 5.25% (as shown on all my statements until the beginning of this year). This year, they upped the rate to 5.5% and said nary a word - no e-mail, no call, no letter - about it. I happened to notice that the interest on the statement didn't match what I had in personal financial software after a couple months and looked into it.

Once I discovered they had made the change, I contacted customer service (several times) and was at first told my rate was always 5.5%, never 5.25% (I have a stack of statements over five years showing otherwise). Finally, someone told me that they had upped the rate because the discount had been given to me in error (which is not true - it was an offer and an acceptance of that offer, as evidenced by 5 years or performance under that agreement).

I asked for the address/phone # of Nelnet's legal department because I want to send them a letter, and was eventually told I could only communicate with customer service, and that I was lucky they weren't going back to get the rest of the money from the years when it was at 5.25% (the correct rate).

This is absolutely wrong, and even though it is only a quarter point, if they did this kind of thing to a lot of people, it might create legal problems for them. I am trying to find out if there are others who might be affected by this "bait and switch" tactic and what I can do about it.

What do you advise?