Rehabbed direct loans but servicer is charging interest from when in default?

[creditclimb]

I completed SL rehab in Oct. FedLoans is my new servicer. I have been making 2 payments a month since my SLs were picked up after rehab. My last payment posted 12/19, all but $3 was applied to principal. As of yesterday they are showing $15 in accrued interest. Based on my principal bal and int rate, my daily interest should be in the ballpark of .40 a day. In 73 days I have pd $25 extra to interest. I have 9 years left of this!

 

Spent an hour on the phone and the SUPERVISOR tells me the extra interest is from when SLs were in DEFAULT. That doesn't make sense to me. Wouldn't all of the fees and interest from prior to rehab have been capitalized when loans were transferred? Don't SL payments get applied first to fees and penalties, then accrued interest, and finally to principal?

 

I'm on $5 IBR payment. Isn't the interest supposed to be pd or forgiven for my subsidized loans?

[LynnInMN]

Not sure where you got the idea that interest forgiven for sub loans,,,the only time they do not accrue is during the in school period and deferment. It continues to accrue during repayment, regardless of your payment plan.

[creditclimb]

I got the info from finaid.org. Limited interest subsidy for up to 3 years if IBR payment does not cover accrued interest. Great if thats true, but no big deal if its not. I'm just confused why I've been charged $52 in accrued interest in 2 1/2 months when it should be at most $39 for 3 full months.

[hodap2001]

If your IBR payment amount does not cover the full amount of interest that accrues on your loans each month, the government will pay any unpaid, accrued interest on your subsidized loans for up to three consecutive years from the date you begin repaying the loans under IBR. What happens to the accrued interest that isn't paid by you or the government? While you still are in IBR and have a Partial Financial Hardship, It hangs out in a kind of limbo and can continue to get bigger as more interest accrues. Capitalization (or adding that unpaid accrued interest to the principal balance of the loan) does not occur unless you no longer have a Partial Financial Hardship or you choose to leave IBR. Capitalization is bad, because then you begin to be charged interest on interest. Not something you want to do. At some point, all the accrued interest and principal has to either get repaid or forgiven. Maybe it’s repaid by you over time or you loan forgiveness. You just need to pay your monthly student loan payment.

Also, payments are applied to fees, interest, and then principal. Also, interest is calculated at simple daily interest. (i.e. Interest Rate / Days in Year X Outstanding Principal Balance)