If I have subsidized student loans and unsubsidized loan, can I pay off the subsidized student loans at any time? Even while still in school?
I assume yes, but wanted to see if there are any gotchas.
Thanks
Yes
Yes, you can pay off any student loan early without penalty.
If you want to pay the unsubsidized loan first, make sure you make that clear with the lender/servicer. If you do not direct them how to apply the payment, they will pay the accrued interest first (and charges, if any), and then most likely will evenly pay the principal on the outstanding loans. How they apply payments should be included on the web payment page.
My daughter’s loan is now in repayment, and she does get a statement each month. On the back of the statement, there is a chart showing the different options to pay the loan(s) and apply the payments. She only has one loan with this servicer (Heartland), so it’s pretty simple -late charges, then accrued interest, then principal. There is also a payoff amount.
Federal loans are currently not accruing interest. I don’t know if that applies to students who aren’t in repayment status yet (current students). If you pay at least the accrued interest before a federal loan goes into repayment, you’ll avoid the capitalization of that interest.
@twoinanddone I thought no payments for loans were required until Sept 30 due to Covid. Sure, students can continue to pay if they choose to, but I thought payments were suspended for now.
Am I wrong about that or did I misunderstand?
No payments are due and interest is suspended until the end of the year on federal direct loans. It is now extended until Dec 31.
My daughter also has a Perkins loan and those are still up and running. She learned the hard way that payments are not suspended. We’re trying to get it paid off now while the other loans are suspended.
In the Heros act bill that didn’t make it out of congress, there was a clause to forgive $10k on federal loans and we were all excited to have a big chunk taken off, but I just read that it would only apply to those who were in default for more than 90 days or those in repayment programs like IBR. I think also those in the repayment for government service programs. So those like my daughter who are struggling to pay but DO pay on time? Nada.
Actually, the HEROES Act would help borrowers like your D. It would extend the payment/interest pause to Perkins loans, even reimbursing the borrower’s loan for payments and interest made while other federal loans have been on pause. It has private loan payment protections, as well. It appears that the “up to $10,000 forgiveness” per borrower would apply to federal and private loans. Here is some information from a very reliable source: https://www.savingforcollege.com/article/house-introduces-heroes-act-with-student-loan-forgiveness.
@kelsmom that isn’t the current plan…right? That is something that might happen in the future.
That’s correct, @thumper1 . It passed the House, but it hasn’t passed the Senate (and most likely will not). It’s not technically dead, but I honestly can’t imagine it will ever pass. My guess is it’s an attempt to force the issues & come to some sort of middle ground. At this point, though, I don’t think anything substantial will happen.
It may pass if things change in November in both the Senate and the WH.
The summary of the HEROS provisions are not as summarized in that article, @kelsmom. Maybe it was the difference between the act as introduced and as passed? The review is dated May 13 and I don’t think it passed out of the house until late June.
That review also has some broad brush statements, such as that college students under 24 are dependents on their parents’ taxes. Not always.
The summary of the HEROS act I read said the $10k forgiveness was only for students who showed a ‘need’ and that need was not really based on current income but on being in a repayment program or being in default on March 20, 2020 (so no going into default now, or signing up for a repayment/deferral program now). I was pretty disappointed that my daughter, who was substitute teaching on March 10 but didn’t have enough hours in to qualify for unemployment and couldn’t find another job, would not get help with her payments. She was making the payments, struggling but doing it. She’s thrilled that she doesn’t have to make payments on her direct loans now and can make the $40 payment on the Perkins loan, but would really like help on the direct loan.
Just doesn’t seem fair that those who already benefited from a repayment plan also may benefit from loan forgiveness while others who struggle just as much get nothing.
Anyway, the HEROS plan is going nowhere. The house is going to compromise on another act, probably at about 1/2 of the Heros act on the major points like unemployment and state aid. There will be a big piece for colleges. The students will have to live with suspended interest and delayed repayments.
Thanks for the responses and interesting comments about the Heroes act. Does anyone know the answer to the question - Does interest suspension apply to current students?
My son is a senior in college. He is not eligible for any subsidized loans because of some scholarships he got (they took them away). He is eligible for unsubsidized loans. To date, he has taken out $8K in subsidized loans over the first 3 years. I was planning on taking out $2K in unsubsidized loans this year and pay back all the loans from 529 plan money (I believe the limit is $10K to use for loan repayments from 529s). There will be no interest on the loan if I l pay back the $2k by the end of the year from 529 money (total cost of that loan would be 1%). This also helps me with the Lifetime Learning Credit this year (we will still be getting the 4 years of AOTC) where I pay more of the bill from non-529 money to get more of that credit. Overall, I am not talking about saving alot of money here, but I always love taking advantage of deals to the max.
As others have said you can pay at any time. While my younger D was in college we paid the interest on her loans so she would just start with the principal on graduation.
Yes, suspension applies to current students. That is, interest is not accruing on unsubsidized loans at this time.