PRE-payment, will it lower the monthly payment?

Discussion in 'Financial Aid' started by Flintstone, May 7, 2008.

  1. Flintstone

    Flintstone Member
    7+ Year Member

    Apr 14, 2002
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    I have about 150,000 in Stafford loans (they are not Direct loans) which are going into repayment soon (10 years, a mix of variable and fixed rate loans). I wonder, if I am able to pay off part of the loan, will it reduce my monthly payment, or, will it just cut down on the # years (& total incurred interest) of repayment?

    I couldn't seem to find the answer on any website.

    Thank you so much!
  2. Sol Rosenberg

    Sol Rosenberg Long Live the New Flesh!
    Physician 10+ Year Member

    Feb 11, 2006
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    Attending Physician
    Are these unsubsidized loans?

    If so, I believe that any payments before the loan enters repayment are treated as payment of interest. That interest will not be added to the principal at repayment, and therefore, your principal at repayment will be lower, which will lower your monthly payment (AND the total interest that you wind up having to pay.)

    If it is a subsidized loan, I think that making payments before the loan enters repayment will similarly lower your principal (but it will be a direct reduction in principal, not just payment of capitalized interest) but I don't see why you would do this before your loan enters repayment -- just send along extra with your first payment (with a subsidized loan, you do not incur interest until the loan enters repayment, and then it is compounded, probably monthly.)
  3. mshheaddoc

    mshheaddoc Howdy
    Moderator Emeritus 15+ Year Member

    Apr 24, 2002
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    Unless you have a boat load of cash sitting around, I'd just pay off the interest and hold off on making payments on the loans. Many people have wonderful dreams about paying their loans off right out of school but realistically that's hard to do until you can keep your head above water making more than say $45K a year.

    If they are all stafford loans, if you want to extend the payment options you have that option as well with most lenders (in lieu of consolidation).

    Sol pretty much summed up everything nicely.

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