Do student loans reamortize?

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Do student loans reamortize?

Postby ChrisC » Wed Jan 27, 2010 11:04 am

Just wondering, if you came in to a big chunk of cash and paid much more than your monthly loan payment for one month, would your monthly payment in the future be reduced? In other words, could you bring an 800 dollar monthly payment down to 500?

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Nom Sawyer
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Re: Do student loans reamortize?

Postby Nom Sawyer » Wed Jan 27, 2010 11:11 am

Its called paying down your loans early... and yeah if you have the money you can pay down your loans anytime you want. Its not like a bank can refuse your higher payments in order to suck more interest from you.

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Re: Do student loans reamortize?

Postby JazzOne » Wed Jan 27, 2010 11:12 am

I don't think the original loan will be re-amortized, but you could always refinance the whole debt. I'm curious about this too. Tag.

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Re: Do student loans reamortize?

Postby jaydizzle » Wed Jan 27, 2010 11:20 am

Good question. If anyone knows the answer please reply. We are all curious. :)

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Nom Sawyer
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Re: Do student loans reamortize?

Postby Nom Sawyer » Wed Jan 27, 2010 11:33 am

you definitely can consolidate and get smaller payments. So one way to do it would be to pay a large chunk of your loans, then consolidate, getting you smaller payments over the life of the loan.

The gov provides these services for Federal student loans, like here:

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Re: Do student loans reamortize?

Postby Renzo » Wed Jan 27, 2010 11:54 am

I'm too lazy to investigate this myself, but you are allowed to change between standard repayment and ICR/IBR at least once during your loan's life, and maybe more, at which point the payment schedule is re-calculated. That might be a way to get the loans to reamortize.

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Re: Do student loans reamortize?

Postby hsprophet » Wed Jan 27, 2010 12:58 pm

Or you could re-amortize it yourself. Put the chuck of cash in the bank any pay extra out of it every month. For example, pay $500 out of your regular income and $300 from the savings account. By doing this you keep you cash for unforeseen circumstances while lowering the payments out of your regular budget.

I like keeping cash on hand. The engine on your car could blow and you need extra money. Or you decide to buy a house and need money for a down payment.

Of course doing it this way requires dicipline, and you don't get any benefits such as possible reductions in interest rate from a refinance. As for interest, if you reamortize, you pay more in interest since you generally won't be paying it off early; interest will accrue for the same time period as the original loan.

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Re: Do student loans reamortize?

Postby pleasetryagain » Wed Jan 27, 2010 1:05 pm

JazzOne wrote:I don't think the original loan will be re-amortized, but you could always refinance the whole debt. I'm curious about this too. Tag.

I second this. Your payment is calculated based on principle balance. Even if you pay it down the payment stays the same. However, the principle/interest ratio of that payment will change in your favor.

edit: Unless one of the finance guys on here wants to take me to school.

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Re: Do student loans reamortize?

Postby odon59 » Wed Jan 27, 2010 1:07 pm

My only advice, and this is based on experience paying a mortgage, is if you want to make extra payments make sure you make it clear in writing that you want to pay down PRINCIPAL, not interest. At least with mortgages, the bank is not obligated to assume you want it to go to principal. There's usually a place on the payment slip to indicate this, so just watch out for it. Oh and also make sure there's no pre-payment penalty. This will depend on the particular T's & C's of your loan. Just my 2 cents...

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Re: Do student loans reamortize?

Postby fl0w » Wed Jan 27, 2010 1:23 pm

Here's how they work if you pay a little extra every month (consolidated with AES - the link is in a post above).

Say your monthly bill is 140. You decide you are going to pay 150 every month. That extra money goes against principle. AES is going to keep you on the SAME repayment schedule. What that means is that every time you overpay a little, the principle and interest total due for the next billing cycle decreases slightly. So say you keep this 10 dollar overpayment up for a while. Eventually your monthly statement will say that you only owe 70 a month instead of that 140.

Now if you have a rough month and decide you can only manage the new 70 dollar total, your next monthly total will be higher than 70. The amount due every month will only decrease for as long as you overpay; it will increase for every time you underpay (only being charged a fee if you underpay for less than the amount due on the bill). Here underpaying is defined as any payment below the original 140.

Hope that makes sense.

Also, yes you can contribute a large sum all at once, but they will keep you on the same schedule to repay meaning that your monthly payments will decrease. To decrease the actual TERM of your loan you need to call and speak with someone (though this will increase your monthly payments again).

In general, student loan debt is considered "good debt". What this means is that typically you can find an interest rate for investment that is higher than the interest rate on your loan. To clarify, this means that if you can invest 10k at 7% over 15 years (or whatever the term matches that of your loan) it would be better to INVEST that money than to pay off 10k of debt for which you are paying 6.5% interest. Your "profit" is that extra 1.5% that you are making by investing the money as opposed to the 0% that you are making paying it against the loan.

So paying off big chunks of loans is certainly something to think about before you go and do it.

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