I have about 102k for student loans from grad school. I pay $500 a month, despite being in forbearance. Since it’s in forbearance (government mandated), they won’t allow me to set up autopay…so – manual payments it is! Checked back at my payments and was shocked to find out that despite paying $500 a month, only $1 – $17 was going toward principal. SO, in the last six months my loan has only gone down a total of…$60!
While I understand I took out loans as an “investment” toward my future, it’s so disheartening to know how predatory even federal loans can be. Every step of the “manual” payment process encourages me to not make an “overpayment.”
So everyone – make sure you look into your loans to understand how much of your payment is actually paying down your loan!
*Edited to adjust monthly interest / principal allocation.
Autopay not allowed – but you’ll still accumulate interest!
byu/Big_Search_6867 inStudentLoans
Posted by Big_Search_6867
5 Comments
5% interest on a $102,000 balance is $425 per month of interest. Overpayments can be good but you have to be conscious of how much more you’re paying than the interest accrual (plus any interest that had accrued in previous months or years that you haven’t paid). For some people, overpayment just don’t make sense and the best path for them is to pay as little on IDR as possible and work toward forgiveness. It’s all depends on circumstances.
It take less than 3 minutes to do a manual payment. We are loving it right now as its allowing us to waterfall our largest loans with the highest interest.
What do you mean every step of the manual payment process encourages you not to make an overpayment?
I have a $121k consolidated loan that I’ve been making manual payments on for almost three years (just because I don’t trust the servicer with autopay; I’m not in forbearance), and it doesn’t disincentivize me from overpaying at all. I just enter in whatever amount I want to pay (which is always at least 2.5x my minimum payment), and that’s that.
If you’re just paying the minimum, especially on a higher principal balance, *of course* most of your payment is going to go to interest.
There are a lot of sketchy things about the whole student loan system, but amortization isn’t one of them.
I’m not sure how auto pay and interest accumulation are related?
I set a calendar alert to pay some every payday.