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My sister has a federal student loan with a total balance of about 60K and an interest rate of 6%. Her income isn't high so she's eligible for an income based repayment plan with a monthly payment of 250. She's frugal, so she can afford to contribute an additional 200 a month towards the loan above what the IBR requires.

I don't think the 250 monthly payment that IBR requires is enough to even cover the interest on her loan, so it is possible for her to make the 250 monthly payment, and then every month, contribute the extra 200 that she can afford directly to the principal? If she just makes a 450 payment a month, some of that extra 200 will go to interest, which seems pointless if she can reduce the principal even more.

Basically the question is, if she's making payments under the IBR, can she also make payments directly to the principal? We're going to ask her loan servicer this too, so it might be specific to them, but any information is super helpful.

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For Federal Loans, anything you pay will go to accrued interest, if any. Anything after that will pay down principal.

IBR simply calculates the monthly payment for the loan and has no effect on the way interest is accrued (Until the loan has been repaid for 25 years and 300 payments, then the remaining balance will be discharged).

A $60,000 loan @ 6% interest will run about $300/mo in accrued interest. If she's paying $250/mo, she's not even touching principal. Depending on how long she's had the loan, she may have accrued a couple thousand dollars in interest that she'd have to repay before she's eligible to pay down any of the principal.

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  • If the loans are accruing interest at 300/mo, and she's only paying 250/mo based on the IBR, then she's never touching the principal, right? She was in school for two years too, and the loans were accruing interest the whole time (they're graduate loans that aren't subsidized). Basically, this means that at her current income, the ONLY hope she has is forgiveness after 25 years, assuming no public service or anything, because she's NEVER touching the principal?
    – Michael A
    Commented Jul 25, 2014 at 21:41
  • @Ben Unless she starts paying more, or her IBR assessment changes her repayment amount, that's right. It's probably over $7,500 in accrued interest that she's worked up, assuming the $60,000 is the loan amount, not the current balance.
    – Noah
    Commented Jul 25, 2014 at 21:58
  • That's depressing but good to know. Does interest on federal loans compound monthly, or annually, or some other frequency? Maybe I should put that in a separate question. I think that 60K is the total loan balance but the original loan amount was at least over 50K
    – Michael A
    Commented Jul 26, 2014 at 1:19

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