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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.

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.

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

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.

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/

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.

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.