I officially accepted my college’s work study, grant, and $3500 federal subsidized loan–but declined the $2000 unsubsidized one.
Anyways, assuming that I graduate in four years, my loans will total to 14,000. With an interest rate of 4.29% compounded daily, my interest would be $49 in my first month. Assuming I pay $300 every month , I would be shedding off $251 from my loan balance after my first month. The next month is the same thing, but my interest would be SLIGHTLY lower since a bit of my loan has been paid the month before.
Am I looking at this the right way?
When my kids graduated, they got a loan payment amount that is the same every month. So…no I don’t think that you are looking at it the right way.
If you have $14,000 in loans when you graduate, you will have approximately a $150 a month payment for about 10 years.
Yes, you are looking at it the right way. The numbers might be slightly different because of fees and day counts, but close enough.
@thumper1 Are you trying to tell me that there’s a fixed amount that I need to pay every month and I can’t pay more than that? Doesn’t make sense to me.
No, there are a bunch of different repayment plans, some to pay off faster and others to pay off slower.
If you decide to pay extra beyond your payment plan, monitor your loan servicer carefully so the payments are applied as you wish them to be.
You can pay any amount you like per month, as long as you are paying your minimum payment. You can’t ‘pay ahead’ and then skip months or pay extra one month with the intention of paying less the next, unless you arrange it with the servicer. There are no prepayment penalties for paying it off early.
If your payment is $150, you can pay $300 in Jan, $300 in Feb, $150 in March, etc. You cannot pay $300 in Jan and intend for it to cover both Jan and Feb unless you tell the servicer that that is what you are doing. However, it screws up the interest accruing if you do that, especially early in the loan repayment schedule so make sure you have always paid your payment and that that payment covers all accrued interest.
You can pay more per month…and yes, that will reduce your loan repayment amount overall…because youmwill laynit off sooner! Good idea if you can do it!
You need to make sure the extra amount is applied to your principal.
I like the way you’re thinking ahead!
Here’s a suggestion for starting out based on your idea to pay $300/month: For the first six months, pay the minimum $150/month on the loan and put the other $150 in some sort of savings account. After six months, switch over to paying down the loan at $300/month. That will give you a buffer for those months where money is tight (which will happen when you’re starting out). After you’ve had to draw down from your reserve, you can go back to the $150/$150 payment approach until it’s topped-off again.
As thumper1 mentioned, take steps to ensure that your extra payments are going towards principal. You can figure out exactly how to do that as you get closer to graduation and you know the details of who is servicing the loan.