Interest building vs. Paying it off

[333333333]

Lotta debt here, trying to pay it off in the smartest way. The details:

Monthly interest builds: $1,350
PAYE amount due: $750
Monthly payments I'm able to make: $1,700

Thus far, I've gone ahead and spread out $1,350 of my $1,700 payments over each of the loans to pay off interest and a few extra bucks of principal, then I take the extra ~$350 and am putting that towards the highest interest loan.

Recently I was made aware that since I'm on a low payment plan that doesn't even cover interest on each of the loans, it might make more sense to pay the bare minimum required under PAYE for each loan, and then apply the ~$950 I'm able to pay all toward the principal of the highest interest loan. Although this means that about $600 of interest will build every month, there is no interest on interest and therefore I could come out ahead.

Does this new plan make sense, letting the interest build? I'm trying to figure out which is the best path before I have to actually fight with FedLoans on the phone about applying payments to the principal before the interest (since they default to interest-first and don't have a way to do it automatically... )

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[TMP-SMX]

Are you in practice now? Are you doing PSLF? If no PSLF refinance the loan to lower your interest rate. Run the numbers and compare REPAYE to PAYE it might save you on some interest to switch to REPAYE but we need more details on your long term plans. REPAYE subsidizes interest.

 

[RangerBob]

Yes, it makes sense to apply any extra payments to the highest interest loan. Your accruing interest doesn't capitalize so it's all hanging out at 0% since it isn't added to your principle.

I thought FedLoan lets you target specific loans with one-time payments online. But yes, their customer service is rather atrocious--I record every conversation I have with them because so often their advice is wrong or it contradicts what they said before.

If you change payment plans, your interest capitalizes. That's what happened to me. I was on IBR (15% payments). I did the match and REPAYE was going to result in me saving money when taking into account the interest subsidy, even with my interest capitalizing. So I switched. As a resident your interest rate is almost effectively halved, depending on how much you owe/how much your spouse owes/earns.