active duty deferment

[Tiankum]

Here's a question that is for anyone currently on AD. The Financial aid websites list that you can apply for active duty deferment of your loans. Here's some of my questions that might also help others...
1. While on deferment for active duty, if you pay additional towards your loans, does that first go towards the interest that the government would otherwise have been subsidizing? Or does it go towards principal of the loans that the government is subsidizing? (e.g. if I have 20k in subsidized loans and i get AD deferment...and then pay towards the loan..will it come off principle or does it go against the interest first and the government prorates the subsidy based on my payment?)

2. If you were to apply for AD deferment on your stafford loans (sub and unsub) does Uncle Sam subsidize the interest on both sub and unsub loans or is it just on the subsidized?

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[Santiago12]

Let me start with #2 first:

2. Uncle Sam will only pay the interest on a deferred subsidized loan, not on the unsubsidized. While in deferment, you don't have to pay anything on either sub or unsub loans, but on the unsub interest will accrue and will be eventually recapitalized (meaning that the principle will actually get larger over time, which you will then pay interest on, so not only will the principle get larger over time, it will get larger at a faster rate)

1. If you have any outstanding interest, any payments will first go to pay off the outstanding interest and only then will go towards the principle. For a sub loan, it shouldn't be accruing interest, so any payment will go to the principle. For an unsub loan, any payment will first pay off the interest that has already accrued and the rest will go to the principle. You should never have to pay any interest on a sub loan (unless its in forbearance) and will only pay the interest on an unsub loan that has ALREADY accrued.

The direct loan system has a new website that is pretty easy to use. You can make payments to individual loans (so pay off the unsub, rather than the sub)

My advice to you is, during AD deferment, pay off the unsub as fast as you can, but ignore the sub until you are no longer in deferment. Even though technically the principle on a sub loan remains the same, adjusting for inflation the principle actually becomes smaller over time.... i.e. one dollar today isn't worth the same ten years from now. If you defer for your 4 years in school, do a 1 year AEGD, and defer 4 years in the army, if the inflation rate is about 2.5-3 % ... the principle will only be 80% of the value it is now (even though technically the dollar amount will remain the same.

My only question is whether we can defer for our whole military duty, will the deferment apply to us? I read online that one can defer (I'm paraphrasing from memory) "while on active duty during times of war, military operation, or national emergency." Once Afghanistan is over, will we be able to defer as AD HPSP dentists? I wasn't able to find an answer to this online and the phrasing isn't quite clear. Does the deferment apply to all full time army active duty? Or those just who deploy? Or does it apply to all full time army active duty, but only while the armed forces are engaged in a "war, military operation, or national emergency." ????

 

[krmower]

If you plan on being in the military for at least 10 years you may not want to defer or forebear at all.

http://www.finaid.org/loans/publicservice.phtml