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Making a large extra payment on consolidated loan

Started by 2mkb1, August 19, 2019, 06:36:02 am

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2mkb1

Hi, my parents want to make a large payment toward my student loan. It will be about $26000.00.
I currently have $19000 in a consolidated subsidized loan, and $18000 in a consolidated unsubsidized loan.  Mohela was showing $13000 in capitalized interest but for some reason its not showing right now. I think they made an error in certifying my IBR plan last year as my payment just dropped but my salary is higher each year.

I have been on an IBR plan for 6 years, but my payments were zero until 2016. I also deferred the loan for several years after graduating in 2009.
Now I want to go onto the standard repayment plan which should be 20 years for my consolidated loans because the amount will be over $22000. I dont want to have to certify any more or file taxes separately from my spouse or deal with any more capitalized interest.

I would like to have all interest that capitalizes paid up and put the rest on principle. I understand that interest will capitalize when I drop the IBR plan.
My question is: Is it in my best interest to change the plan before making the large payment or change the plan after the payment?

My fear is that if I change the plan before, the interest capitalized will be higher, might it possibly be less that capitalizes since we are paying the large amount?
But if I change the plan after the payment will there be unpaid interest that comes from the capitalization at that point?.
I also want to make sure I stay on the 20 repayment for subsidized loans, not a 10 year.

Thanks for any and all advice

TheCollegeInvestor

I'm a bit confused why you're dropping the IBR plan? The standard extended plan can be 20 years, but why change - if you've been on IBR for 6 years, you get any balance remaining forgiven at the 20 or 25 year mark (depending on your loans). Either of those is better than switching.

Even more so, If you make this large additional payment of $26,000, your new loan balance will be just $11,000. Where do you get the $22,000 from?

If it were me, I'd take that $26,000 and fully pay off the unsubsidized loan, and then put the remaining $8,000 towards the subsidized loan. At your new remaining balance of $11,000, you can assess your repayment strategy, or even just stay in IBR at the higher payment amount and make additional payments as you can to eliminate the debt.

2mkb1

I read that if I make a large payment the capitalized interest should be paid first and that is 13000.
Also it says on my loan page on Mohela that extra payments must be applied to both loans equally.
I want to get rid of the IBR so I don't have to file taxes separately and don't have to recertify every year and hold my breath while I wait to see what the new payment will be. It also looks like this year my payment doesn't cover all the interest.

TheCollegeInvestor

1. If you don't make a full payment, capitalized interest is first. nothing is capitalized unless you change plans.

2. You can make payment to specific loans on your Mohela Dashboard. Click make additional payment, and pay the amount. if you pay off the entire loan, everything is moot.

3. Once you pay off the loan, and make big progress on the second, file your taxes jointly. It makes your payment higher than normal, but on the tiny remaining balance you should be fine. You never have to hold your breath and wait - you can do the math yourself here and see what your payment would be: https://studentloans.gov/myDirectLoan/repaymentEstimator.action#view-repayment-plans

2mkb1

Ok thanks so much for your help.
I think I might go ahead and keep the IBR and pay off the unsubsidized loan first but if I do that won't I have to pay the unpaid interest for that loan too?
I'm thinking I probably can't pay the 18000 in full and let the interest ride, or can I?
Maybe I should just pay half on each principle balance.

TheCollegeInvestor

If you send a random payment to Mohela, they divide it amongst your loans. if you go online, you can make specific individual payments to specific loans - and specify what you want the payment to go to.

It's very similar to this: https://debtfreeinsunnyca.com/blogs/dfisca/fedloan-how-to-make-an-extra-payment-on-an-individual-student-loan