beolein

For an unsubsidized loan, the servicer says payments don’t start until the final disbursement of the school year (i.e. spring semester instead of fall semester). Interest is already showing up on the account this fall. The servicer says if you start paying after the final disbursement in the spring rather than six months after graduation, they will apply the payments first to the interest so there is no capitalization.

I disagree. I think if you don’t start paying off the principal in the fall, you will pay more overall over the length of the loan.

Who is right?

On the other hand, the servicer won’t provide a payment plan until the spring. So if you want to start paying off the principal right now, you have to guess how much to give them (perhaps with an online calculator) and make sure they apply any payments to the principal. Or is seven months of interest (the loan starts in August and the repayment doesn’t have to start until 60 days from the final disbursement in January) on a Stafford loan not that much to worry about starting to pay in the fall?

kelsmom

Interest begins accruing as soon as the first loan funds are disbursed. The lender does not post interest daily, so paying off interest is a bit tricky ... I always send more than I figure it will be, then instruct the servicer to apply it first to interest, then to principal.

I'm not quite sure what you mean by "payments don't start until the final disbursement of the school year."

This also does not make sense to me: (the loan starts in August and the repayment doesn’t have to start until 60 days from the final disbursement in January). Repayment does not begin until you have graduated, left school, or dropped below half time (and then, not until after the grace period).

beolein

What I mean by “"payments don't start until the final disbursement of the school year” is that the loan is disbursed twice. The first half is disbursed in the fall and the second half is disbursed in the spring. The servicer says they don’t start asking for payments (if you don’t defer) until after the spring disbursement. But interest starts accruing with the first, fall disbursement.

Sorry about the confusion. I was trying to be generic about the loans. For Parent Plus loans, if you decline deferment in order to save money, “the loan starts in August and the … [servicer says they don’t start asking for payments] … until 60 days from the final disbursement in January.” For unsubsidized Stafford loans, if you decline deferment in order to save money, “the loan starts in August and the repayment doesn’t have to start until … the final disbursement in January.”

Overall, the servicer says if you decline deferment, they don’t start asking for money until a while after the loan started, interest accrues, and the apply the first payments to the interest. I wonder if you wait a while after the loan starts, are you paying more in this case?

kelsmom

When interest accumulates & you don't pay it right away, you end up owing interest on the interest. It probably won't be a lot if you don't wait too long. You can check out the effect of putting it off by using a repayment calculator.

beolein

Thanks kelsmom!

To summarize for everyone reading this, if you don't start paying an unsubsidized loan as soon as the school gets any money, it will cost you more in the long run. And loan companies don't necessarily start asking for money right away.