In Repayment and I don't understand!

[raichelle2]

I have 2 consolidated loans...

 

One is for ~$18K with an interest rate of 6.550%.Capitalized interest is $1200. And the other one is for $11K with an interest rate 3.750%, Capitalized interest is $0.

 

I just made my first payment of roughly $300 and this is how it was applied over both loans... $120 was applied to principal and $181.74 was applied to interest.

 

My concern is should I be applying my payments to solely interest or solely principal? I'm not quite sure.

 

And I hate that I have these two loans, but I don't want to lose the 3.75% interest rate that I have with one... is that being foolish or should I have tried to consolidate and hope that my interest rate will be an average of 3.75% and 6.55%?

 

I greatly appreciate it in advance! Given the calculator on the website I will be paying these loans back for around 24 years... that just depresses me. I am on the standard plan because I can't bear prolonging the time I have to pay these people back! Thanks.

 

ETA: Also how do my payments factor in tax season?

Edited September 26, 2008 by raichelle2

[LynnInMN]

If you had consolidated all your loans together you would have ended up with a weighted average of all your interest rates.

 

On the payment application......student loans apply payments to interest first and principal second.

[raichelle2]

Thanks...

 

but I don't think my questions were answered. I read somewhere that when sending in a payment you can specify how you want your payment applied. Has any one done this?

 

Also is a weighted average better than having the two interest rates? Is it too late to consolidate the two?

 

and how does loan repayment factor in come tax time?

[Saria]

If you're just paying the monthly amount due, it will be applied to interest first, then principal. If you pay more than the amount due, you can most likely specify whether it should be applied to a future payment or to the principal. This might be what you're thinking of.

 

In most cases, having one loan with a weighted average rate will work out about the same as having two loans with different rates. In your case since you have two consolidation loans, you cannot consolidate them together so it's a moot point. If you were to take out a new loan sometime in the future, you would be able to consolidate all of them together.

 

At tax time, you may be able to deduct the interest paid over the year depending on your particular circumstances. If you pay more than $600 in student loan interest during the year, you'll be sent a 1098-E with the interest amount. You can find more information about the interest deduction here: http://www.irs.gov/publications/p970/ch04.html

[raichelle2]

Makes sense, thanks so much.

[think]

All payments are applied to fees, interest, and then principle, in that order.

 

Separate from and in addition to that, you can choose whether you want overpayments to move your due date further into the future or not. Regardless of whether or not your overpayment moves the due date forward, any portion of an overpayment that exceeds the outstanding fees and interest owed, must be applied to the principle balance.

 

In other words, you can say "ok my payment is $50 and I'm paying $100, and I still want to have $50 due next month" or you can say "ok my payment is $50 and I'm paying $100, and I don't want my next payment to be due until the month after next month". In this example, the same amount goes to principle whether you want you due date moved back or not, but if you choose not to pay until that moved-back due-date, more of that FUTURE payment will go to interest.