Federal College Loans: Can payments be accelerated?

[Tree-dweller]

Hopefully someone has already dealt with this. DW and I want to help out our daughter with her Federal Direct Unsub And Direct Plus grad school loans by making occasional additional payments, but I don't seem to be able to apply it to principal. I called the lender help desk, and the gist seemed to be that any additional payments went to interest, and pushed back the due date for the next payment. Is this right? Is there some way to get additional payments applied to principal only?

[jazz4cash]

No, I don't think that's right at all. How can you make extra payments to interest? My daughter paid off one loan early by making extra principal payments. I showed her how to target the highest rate loan first. Maybe they meant payment of interest that was added to the loan balance before the payment period started. Once it is added to the balance its all the same. We paid off interest on the unsubsidized loans as we went.
...now that I think about it, they may push the due date back to discourage early payoff but just keep making regular and occasional extra payments and as long as they accept the payments you should be good.

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[akck]

Any extra payments are split between current interest due interest and principle. Yes, the accounting they do on the loan treats them as early payments, so theoretically, your daughter could skip payments. But, if she continues to make regular payments, the loan will be paid off early. If you want to see all of your payment go to principle, make your payment the same day as your daughter. Her payment will first pay current interest due with the rest going to principle, and your payment will go to principle only. Now, if the loan was accruing interest while she was going to school, it most likely was capitalized and for accounting purposes, payments are applied to it first (after current interest due). The saving grace is that payments applied to accrued interest are deductible.

[target2019]

Logging in to see what's going on will help. I do remember one child trying to pay down a higher rate loan by targeting more principal payment in that direction. But he was not able to do so. In his case extra payment was split equally. Eventually he grew tired of the payments and seriously attacked that for a tear and paid off entirely.

For other child, she was able to pay something more each month. I don't have the details.

I think it is possible that at different times and with different loan agencies you could see unexpected rules.

Best way? Take a pile of cash and pay the bloodsuckers off. Let her pay you back.

[youbet]

Quote:

Originally Posted by target2019 Best way? Take a pile of cash and pay the bloodsuckers off. Let her pay you back.

I agree with this. Our godson's parents recently paid off his loan and he's paying them back (interest free, but that would be an optional act of generosity) over the next few years. I hope this doesn't create any family issues and so far, so good.

As far as being "bloodsuckers," I tend to cut most of the lenders a bit more slack. You don't have to take a loan from them. Most tax payers don't want increased taxes to pay for loan-needing kids to go to college or trade school. So, if you want to go, can't get a grant or a job that works in with school activities, at least there are loans available, even if you do have to pay them back.

[FI by 2024]

I can't say with any certainty what is allowed now, but when I paid extra on my federal loans from 2004-2007 I was paying down principal. I think there was one month where the due date got pushed back, but it wasn't happening every time.


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