Loan Interest

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
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zozin
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Loan Interest

Postby zozin » Tue Apr 24, 2012 10:01 pm

How does Stafford/Grad Plus interest accrue? Someone at UIUC's ASW said it's quarterly, and they give you the option to pay it off before it rolls back into the loan and you're charged interest on interest.

Also, since you're taking 3 years worth of loans, in 2 lump sums each year, does the interest start accruing when the money is disbursed to you or when you apply initially?

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bk1
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Re: Loan Interest

Postby bk1 » Tue Apr 24, 2012 10:04 pm

Interest accrues daily, iirc.

bmili
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Re: Loan Interest

Postby bmili » Mon Apr 30, 2012 9:44 am

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Last edited by bmili on Tue Mar 11, 2014 5:14 pm, edited 1 time in total.

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albusdumbledore
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Re: Loan Interest

Postby albusdumbledore » Mon Apr 30, 2012 10:12 am

It accrues daily and starts at disbursement. Outstanding interest doesn't actually get put back into principal until you enter repayment if you've deferred, or you can pay the interest off quarterly to avoid this.

CyLaw
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Re: Loan Interest

Postby CyLaw » Mon Apr 30, 2012 10:19 am

albusdumbledore wrote:It accrues daily and starts at disbursement. Outstanding interest doesn't actually get put back into principal until you enter repayment if you've deferred, or you can pay the interest off quarterly to avoid this.


This.

Also, why do people pay the interest while still in school. If you are still on loans, any money you are using to pay off the interest is more loan money which is being charged interest whereas the interest that accumulates on the loan is not being charged interest. Isn't it better to not take more loan money to pay that interest? Even if you are not on loans, but just in deferment, isn't it better to make a principal payment, not an interest payment.

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albusdumbledore
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Re: Loan Interest

Postby albusdumbledore » Mon Apr 30, 2012 10:47 am

CyLaw wrote:
albusdumbledore wrote:It accrues daily and starts at disbursement. Outstanding interest doesn't actually get put back into principal until you enter repayment if you've deferred, or you can pay the interest off quarterly to avoid this.


This.

Also, why do people pay the interest while still in school. If you are still on loans, any money you are using to pay off the interest is more loan money which is being charged interest whereas the interest that accumulates on the loan is not being charged interest. Isn't it better to not take more loan money to pay that interest? Even if you are not on loans, but just in deferment, isn't it better to make a principal payment, not an interest payment.

For your first question, yes that's right. The only scenario really where it makes sense to pay the interest is if you land a job during school or you have some other outside source of money that you didn't have when you started.

For your second question, most places apply payments to interest before principal.

CyLaw
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Re: Loan Interest

Postby CyLaw » Mon Apr 30, 2012 10:51 am

albusdumbledore wrote:For your second question, most places apply payments to interest before principal.


You're right. I'm use to mortgage and auto loans. I just assumed that principal only payments were possible, but that doesn't look like an option on my loan servicer's site.

bmili
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Re: Loan Interest

Postby bmili » Mon Apr 30, 2012 3:05 pm

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Last edited by bmili on Tue Mar 11, 2014 5:13 pm, edited 1 time in total.

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dingbat
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Re: Loan Interest

Postby dingbat » Tue May 01, 2012 10:03 pm

bmili wrote:auto and student loans are very similar (simple interest). Meaning, your interest accrues on the last payment date, so any payments received go to any and all interest first, then to prin. There are some simple interest mortgages out there but most follow an amortization schedule in which the payment date is irrelevant.

Please explain (because this doesnt seem right)

bmili
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Re: Loan Interest

Postby bmili » Wed May 02, 2012 8:45 am

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Last edited by bmili on Tue Mar 11, 2014 5:13 pm, edited 1 time in total.

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dingbat
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Re: Loan Interest

Postby dingbat » Wed May 02, 2012 1:09 pm

bmili wrote:
dingbat wrote:
bmili wrote:auto and student loans are very similar (simple interest). Meaning, your interest accrues on the last payment date, so any payments received go to any and all interest first, then to prin. There are some simple interest mortgages out there but most follow an amortization schedule in which the payment date is irrelevant.

Please explain (because this doesnt seem right)


I work with loans every day

http://www.mtgprofessor.com/a%20-%20amo ... t_work.htm

http://www.debtfreeadventure.com/how-st ... -to-month/

I understand.
You are actually referring to whether interest is calculated daily or monthly, which has nothing to do with amortization.
(simply put, an amortization schedule is a product of projected/required payments, showing the interest accrued each period and how much of each payment remains to pay down the loan balance)

bmili
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Re: Loan Interest

Postby bmili » Wed May 02, 2012 3:23 pm

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Last edited by bmili on Tue Mar 11, 2014 5:13 pm, edited 2 times in total.

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dingbat
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Re: Loan Interest

Postby dingbat » Wed May 02, 2012 3:38 pm

Bmili - you're right, let's not get into a pissing contest about simple loan terms

Cylaw - you're right, that is the difference between simple and compound interest
(or, as previously implied, whether it compounds daily, monthly or annually)
thank you for stating this, as I have agreed not to (even though Bmili is wrong)

bmili
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Re: Loan Interest

Postby bmili » Wed May 02, 2012 3:41 pm

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Last edited by bmili on Tue Mar 11, 2014 5:12 pm, edited 1 time in total.

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Glock
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Re: Loan Interest

Postby Glock » Wed May 02, 2012 3:42 pm

Prepare your anus.

CyLaw
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Re: Loan Interest

Postby CyLaw » Wed May 02, 2012 3:48 pm

bmili wrote:
dingbat wrote:Bmili - you're right, let's not get into a pissing contest about simple loan terms

Cylaw - you're right, that is the difference between simple and compound interest
(or, as previously implied, whether it compounds daily, monthly or annually)
thank you for stating this, as I have agreed not to (even though Bmili is wrong)


Try learning how to read, I've made no reference to compound vs simple. You simply disagreed with my original statement and my links were there to show you how student loan interst was calculated.


You are right. I was confused on what you were referring to with simple interest. You mean the simple interest formula for calculating loan payments, not how the interest is calculated.

Hence why I deleted my post.

bmili
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Re: Loan Interest

Postby bmili » Wed May 02, 2012 3:50 pm

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Last edited by bmili on Tue Mar 11, 2014 5:14 pm, edited 1 time in total.

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dingbat
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Re: Loan Interest

Postby dingbat » Wed May 02, 2012 3:59 pm

My understanding is that you are referring to whether interest is determined daily or monthly
(I agree, you made no reference to compounding - my apologies)

In both cases, your payment is applied to interest first, principal second.
However, with a mortgage the interest is not determined daily (ignoring certain exceptions)

However, late payment fees are applied if not paid on time or during the grace period.
I am not familiar with calculations re non-payment and will defer to your knowledge
My understanding is that interest will start to accrue and any future payments are applied first to the interest/penalty and then to the principal
Please correct md if I'm wrong

(also, let's not get into less-than-interest mortgages)

bmili
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Re: Loan Interest

Postby bmili » Wed May 02, 2012 4:17 pm

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Last edited by bmili on Tue Mar 11, 2014 5:12 pm, edited 1 time in total.

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dingbat
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Re: Loan Interest

Postby dingbat » Wed May 02, 2012 4:20 pm

bmili wrote:
dingbat wrote:My understanding is that you are referring to whether interest is determined daily or monthly
(I agree, you made no reference to compounding - my apologies)

In both cases, your payment is applied to interest first, principal second.
However, with a mortgage the interest is not determined daily (ignoring certain exceptions)

However, late payment fees are applied if not paid on time or during the grace period.
I am not familiar with calculations re non-payment and will defer to your knowledge
My understanding is that interest will start to accrue and any future payments are applied first to the interest/penalty and then to the principal
Please correct md if I'm wrong

(also, let's not get into less-than-interest mortgages)


Mortgage interest is actually calculated on a daily basis but since mortgages typically use a 360-day year convention, the math ties on a montly calcuation basis. You are correct on the payment waterfall for student loans. Going from the Dept of Ed website (http://studentaid.ed.gov/students/publi ... repay2.htm), payments are first applied to late charges, then interest, and finally principal. I am not sure what the typical late charges for student loans are but in the mortgage world it is typically a flat fee that the servicer gets to keep that is due with each scheduled monthly payment. On the Dept of Ed website provided, there is a formula provided that you can work with to see different scenarios. Basic rule of thumb is that the longer between payments, the more interest you pay.

That's what I thought
I guess this entire argument was a matter of semantics (we both understand correctly, but are miscommunicating/misunderstanding)

bmili
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Re: Loan Interest

Postby bmili » Wed May 02, 2012 4:22 pm

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