Author Topic: Student Loan Question  (Read 1764 times)

MrsPfennig

  • 5 O'Clock Shadow
  • *
  • Posts: 83
  • Location: Bavaria, Germany
  • If it were easy, everyone would do it
    • Auf Heller und Pfennig
Student Loan Question
« on: August 12, 2015, 12:49:13 AM »
Hello fellow mustachians,
I need advice. So I was on maternity leave and my loans are in forebearance till October. So far I have paid off two loans. I still have outstanding/unpaid interest of $2,400. I hope to pay that off until forebearance ends so it wont capitalize.

I have four more loans. I'm doing the debt snowball from smallest to largest (all loans are at 6.8 %). That method was no problem while in forebearance. What happens to the interest that accrues after forebearance? Do I have to pay the interest on each loan monthly and then the rest off it towards the smallest? How often does the interest capitalize? I searched the homepage but all I found was calculators and the definition of capitalization.

Thanks for your input!

Sibley

  • Magnum Stache
  • ******
  • Posts: 4373
  • Location: Northwest Indiana
Re: Student Loan Question
« Reply #1 on: August 12, 2015, 08:20:35 AM »
Whatever interest you accrue while in forebearance will be added to the principle balance when you resume payments (capitalization).

From that point on, you will accrue interest on the principle and your monthly payment will first be applied to interest, then to principle. If you pay more than the minimum, you need to make sure it's being applied to principle and not pushing back the date of your next payment. All of this is per individual loan.

You may want to consider consolidating your loans, depending on your situation. You might be able to reduce that interest rate. There are various threads (including referral codes which get you money) about SoFi, but there are other companies as well.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 2065
  • Age: 41
  • Location: Pueblo West, CO
Re: Student Loan Question
« Reply #2 on: September 05, 2015, 08:09:15 PM »
My loans are split between 6.55% and 2.15% I signed up for the 25 year plan, but pay it off like a 10 year plan. When I make extra payments, I can designate the payment to go to the 6.55% loans.

Merrie

  • Bristles
  • ***
  • Posts: 465
  • Location: Midwest
Re: Student Loan Question
« Reply #3 on: September 05, 2015, 08:53:37 PM »
I think the interest capitalizes at the end of forbearance if you don't pay it. At least that's been my experience and we have had loans in forbearance multiple times.

After the loans come out of forbearance, you'll have minimums due for each loan and you can put more on one loan which typically should come straight off of principle. Are they all through one lender? I was usually able to go through and designate amounts to go to each of the individual loans. I never noticed a problem with extra payments getting applied to future interest. The way I could tell is, say I had $1000 to spend on my loans and the minimum payment was $600. I'd pay $600 and then right away, like the next day, go and put $400 on only one specific loan, and $398 or so of that would go to principle with the rest being to pay the miniscule amount of interest that had accumulated in the short intervening time.

MrsPfennig

  • 5 O'Clock Shadow
  • *
  • Posts: 83
  • Location: Bavaria, Germany
  • If it were easy, everyone would do it
    • Auf Heller und Pfennig
Re: Student Loan Question
« Reply #4 on: September 07, 2015, 01:21:26 AM »
Thank you everyone!

Merrie, yes the interest capitalizes for me next month. I just paid half of that amount off and want to finish the other half with the October paycheck, so not a single cent will capitalize. I'm trying to pay them off as quickly as possible and I need to figure out which plan covers the interest on the Minimum payment; hence allows me to pay most of my money towards the principle of the smallest loan (doing the debt snowball).