Accrued Interest Shenanigans

[randymarsh]

I graduated Saturday. Today I logged in my student loan account to make sure the 6 month after school deferment was in effect. It was (good), but the bastards had already capitalized my accrued interest (bad), probably as I walked across the stage and received my diploma! I was under the mistaken assumption that interest didn't capitalize until I entered repayment.

At the start of this school year I had about 7K in outstanding interest. Since then I've been (mostly) aggressively paying it off. Recently I finally began to attack principal. Because of all these payments, the amount capitalized was only a few hundred. But imagine if I hadn't paid any of it! My 40K loan, accruing interest at the rate of $8.66 per day, would have become a 47K loan accruing interest at $10.72 per day.

Lately I've been doubting whether being so aggressive with my repayment was the right choice. I kept wishing I had kept more money in the bank, especially since I'm trying to relocate to Denver. But I think now I know I made the right choice.

[Ftao93]

Congratulations on graduating!

I think you have done a much better job than most of addressing this. You won't be paying it off when you retire!

Keep in mind, you're just beginning.  You have LOTS of time.  Just the mindset you have will serve you well.

And let me know if you need any sounding boards about Denver.  I have lived here a long time!

[Miss Bigglesworth]

Good choice! I wish I had thought to do that. Capitalized interest was a serious blow.

[skunkfunk]

I guess I don't understand what is going on here. Are you saying that they did not calculate your interest owed from your time in school until after you graduated? Mine accumulated from the moment that I borrowed the money (albeit at ~1% annually).

[randymarsh]

I guess I don't understand what is going on here. Are you saying that they did not calculate your interest owed from your time in school until after you graduated? Mine accumulated from the moment that I borrowed the money (albeit at ~1% annually).

Interest was accruing the entire time. But I started paying it down last summer when my income rose significantly. I was able to pay down ~7K over the year.

Accrued interest was not added to my principal balance (capitalization) though until evidently sometime in the past few weeks.

Since I had paid it down, only a small amount was added to my principal balance instead of 7K. This is important because how much interest you pay is calculated as (principal balance X interest rate).

[skunkfunk]

I guess I don't understand what is going on here. Are you saying that they did not calculate your interest owed from your time in school until after you graduated? Mine accumulated from the moment that I borrowed the money (albeit at ~1% annually).

Interest was accruing the entire time. But I started paying it down last summer when my income rose significantly. I was able to pay down ~7K over the year.

Accrued interest was not added to my principal balance (capitalization) though until evidently sometime in the past few weeks.

Since I had paid it down, only a small amount was added to my principal balance instead of 7K. This is important because how much interest you pay is calculated as (principal balance X interest rate).

OK, got it. So you were most certainly correct to pay down that interest ahead of that event.

[taekvideo]

I guess I don't understand what is going on here. Are you saying that they did not calculate your interest owed from your time in school until after you graduated? Mine accumulated from the moment that I borrowed the money (albeit at ~1% annually).

Interest was accruing the entire time. But I started paying it down last summer when my income rose significantly. I was able to pay down ~7K over the year.

Accrued interest was not added to my principal balance (capitalization) though until evidently sometime in the past few weeks.

Since I had paid it down, only a small amount was added to my principal balance instead of 7K. This is important because how much interest you pay is calculated as (principal balance X interest rate).

Yes and if you put all your money right AFTER it capitalizes instead of before... it'll eliminate that extra principal and the interest will be the same as if you had paid just before capitalization.
There's nothing super urgent about it, and it shouldn't cause any problems if you miss it by a few weeks.... heck even a couple months after wouldn't cost you THAT much.