Pay interest or pay off the principal balance while in medical school?

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dtx_17

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Sep 29, 2017
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Second year here.
I got married recently, and my husband's income is enough to cover our monthly expenses. We have enough to invest ~$500 monthly in loan repayment. We have a fluffy enough savings already (TY cash wedding registry) so adding to savings is not in consideration.

My question is - is wiser to pay off accruing interest across the board while I'm a student, or to focus on lowering/paying off a couple of the principal balance (after paying that loan's interest, obviously).
I have ~$122k of principal, ~$5500 interest accrued thus far. I've taken out both Direct Student Plus ($27k) and Stafford loans (the rest).

I posted this on the Finance and Investment forum as well because I didn't know which was better suited for my question :)
 

RangerBob

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Step 1 would be just borrow less in the first place.

But if you have the funds to make payments, always make principle payments. In school your interest doesn’t capitalize, so it doesn’t accrue interest. But the principle does.

Interest does capitalize once your grace period ends, so it’s only a few years worth of interest savings at most by paying down principle, but you will still get more bang for your buck paying down principle

Obviously pay down the principle on your highest interest loan. To get to the principle, you do have to pay down all the interest on that loan first.
 

dtx_17

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Step 1 would be just borrow less in the first place.

But if you have the funds to make payments, always make principle payments. In school your interest doesn’t capitalize, so it doesn’t accrue interest. But the principle does.

Interest does capitalize once your grace period ends, so it’s only a few years worth of interest savings at most by paying down principle, but you will still get more bang for your buck paying down principle

Obviously pay down the principle on your highest interest loan. To get to the principle, you do have to pay down all the interest on that loan first.
Yeah, I returned about $4,000 I had initially requested for this semester; we're doing what we can not to hold on to what we don't need.
But that sounds solid. Thank you!
 
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penicillinman

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Step 1 would be just borrow less in the first place.

But if you have the funds to make payments, always make principle payments. In school your interest doesn’t capitalize, so it doesn’t accrue interest. But the principle does.

Interest does capitalize once your grace period ends, so it’s only a few years worth of interest savings at most by paying down principle, but you will still get more bang for your buck paying down principle

Obviously pay down the principle on your highest interest loan. To get to the principle, you do have to pay down all the interest on that loan first.

Is this correct (bold and underlined) for grad plus loans too for medical school? I had the impression that grad plus capitalizes as soon as it is disbursed and continues to do so throughout school? @dtx_17
 

RangerBob

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Is this correct (bold and underlined) for grad plus loans too for medical school? I had the impression that grad plus capitalizes as soon as it is disbursed and continues to do so throughout school? @dtx_17

To my knowledge student loans capitalize only upon starting repayment (at end of grace period) and changing repayment plans (from IBR to REPAYE, for example). I think if you are in the standard repayment plan interest may capitalize yearly as well, but with all the income-based programs it won’t capitalize as long as you recertify on-time.
 
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FutureInternist

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Do you even get a choice?
Any payment to any loan you make is first put towards the interest accrued and then the remaining is applied towards principal.

If you make an extra payment, or pay more than minimum, then depending on company, you may have to tell them to apply towards the principal (cos sometimes those jackasses hold on to the $, and then apply it towards the interest of the next month, unless told to apply towards principal)
 
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