122/132 Interest in my Interest and an Update

interest rates At least one person wanted to know a little more about my student loans so I’ll share some more details. I have one consolidated student loan that consists of four formerly separate student loans. That is why I sometime refer to my student loan as my student loans. When I finished school the balance of these loans was about $106,000. After a couple of years that balance had grown to about $118,000. My loans have always been on an income based repayment plan since there was no way I could afford the payments on a 10 year payment plan. When on an income based repayment plan you need to re-certify your income every year. Somehow I didn’t know that when I first started paying on my loans and my plan reverted to the 10 year schedule when I failed to re-certify. I had to put my loan on forbearance for one month and then I was able to get back on the income based repayment plan. The bad thing about that is going off and then back on the income based repayment plan meant my interest capitalized. That is why I’m now paying interest on about $118,00 instead of $106,000. On student loans you don’t pay interest on the accumulated interest unless it capitalizes. That interest capitalizing has resulted in thousands of dollars in extra interest charged.

The interest rate on my loans is quite high at 6.875. I get a .25% discount for auto pay to bring the rate down to 6.625% a month. That isn’t much help, but I will take what I can get. I’m hoping I can get the whole loan refinanced next year. After looking at a couple of refinancing calculators it looks like I should be able to save over $10,000 in interest by refinancing. The actual amount will depend on what interest rate I can refinance at and how quick I can pay off my loan. Even if I’m able to refinance my loan at a relatively low rate I want to pay it off as soon as possible.

I’ve made excellent progress paying down my loan this month. I started needing to make 132 payments and I’m already down to needing to make 122 payments. This progress was accelerated by taking a $7000 0% balance transfer with a 1% transaction fee. Since my interest is based on the $118,000 amount and not the total amount my monthly interest charged will remain the same until I can get the balance under $118,000. I plan to get that done next month.  The balance transfer will help me start reducing the charged interest sooner. I’ve also made some payments on my student loan with my credit card using Plastiq (referral link) and Gift of College gift cards. This allows me to earn credit card rewards and/or meet minimum spend requirements for sign-up bonuses while paying down my student loan. I’ll explain more about how I use Plastiq and Gift of College in a post next week.

It will be a couple of weeks before I’ll be able to make any more payments on my student loan. April will be a good month though.  After that things will slow down since I’ll be on sabbatical from my job and will be in Europe for three weeks. Until then I’ll keep paying on the student loan as much as I can. If you have any questions or suggestions on what I’m doing please share them.

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