IBR / PAYE question

[Anonymous]

Lets say my PAYE monthly payment is 500. What if 500 doesn't even cover the interest for my direct subsidized and unsubsidized loan. The part I'm confused on is does the goverment cover the rest of interest. Is it not capitalize / added to my principal balance?

I was reading this:

Under IBR, unpaid interest is capitalized (added to your loan principal balance) only if you are determined to no longer have a “partial financial hardship,” or if you choose to leave the IBR Plan.

so as long as I am in IBR it wont be added on? But in this case. then my principable balance would stay the same for 20-25 years?

Then I was reading something about how goverment only covers direct SUBsidized loan interest for the first 3 years. I'm confused on which one it is?

[scvbd99]

It's completely possible to only pay interest with income-based repayment options, whether it be IBR or PAYE.  You still owe the principal, even if your payments dont' pay it down at all.  All interest will be capitalized if you don't pay down the principal, and there's no magic way to make it go away, unfortunately. 

PAYE is what, 10% of your formula-calculated income, and IBR is 15% of your formula-calculated ncome.  So long as the discretionary percentage they take out for your monthly payments is a lower amount than your monthly interest, you will never pay down the principal, and all interest will be capitalized.  

[Anonymous]

is there a max on the capitalized interest . Because I was reading with PAYE plan that is a benefit :

Another great feature of this loan is that interest will never capitalize above 10% of the original loan amount. This could make a big difference down the road for a college grad.  Let’s imagine that you have a total loan debt coming out of college of $35,000.  As you pay this off over the next 20 years, the max amount of interest that can be capitalized, or added to the amount of the loan, would be only $3,500.

so is 10% the most interest they can add on to the loan.  WHo can you speak to about the PAYE plan for more information?

[scvbd99]

Oh, I should've looked before I leapt. 

You're right.  

"If your monthly Pay As You Earn payment amount does not cover the full amount
of interest that accrues on your loans each month, the government will pay your unpaid accrued interest on your Direct
Subsidized Loans (and on the subsidized portion of your Direct Consolidation Loans) for up to three consecutive years
from the date you begin repaying your loans under Pay As You Earn."

So the govt will pay the remaining interest on your subsidized loans that you can't afford for a period of 3 years.  

[Anonymous]

Not sure what that really has to do with figuring out iif the maximum interest is capped at 10% of balance

Can somoene clarify this statement:

is there a max on the capitalized interest . Because I was reading with PAYE plan that is a benefit :

Another great feature of this loan is that interest will never capitalize above 10% of the original loan amount. This could make a big difference down the road for a college grad.  Let’s imagine that you have a total loan debt coming out of college of $35,000.  As you pay this off over the next 20 years, the max amount of interest that can be capitalized, or added to the amount of the loan, would be only $3,500.

so is 10% the most interest they can add on to the loan.  WHo can you speak to about the PAYE plan for more information?

[scvbd99]

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@Anonymous wrote:

Not sure what that really has to do with figuring out iif the maximum interest is capped at 10% of balance

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Sorry. 

I'll make sure to PM my posts to you for you to clear them from now on before posting.  

[SCF]

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@Anonymous wrote:

Not sure what that really has to do with figuring out iif the maximum interest is capped at 10% of balance

Can somoene clarify this statement:

is there a max on the capitalized interest . Because I was reading with PAYE plan that is a benefit :

Another great feature of this loan is that interest will never capitalize above 10% of the original loan amount. This could make a big difference down the road for a college grad.  Let’s imagine that you have a total loan debt coming out of college of $35,000.  As you pay this off over the next 20 years, the max amount of interest that can be capitalized, or added to the amount of the loan, would be only $3,500.

so is 10% the most interest they can add on to the loan.  WHo can you speak to about the PAYE plan for more information?

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I suspect you can answer your own question there.  I'm not familiar with the specifics on interest and the PAYE plan, but where did you find this information?  If it was an official DoE website, or through a reputable source like a school financial aid department, I would go ahead and rely on that information.    This is a great website: http://studentaid.ed.gov/ to get information straight from the horse's mouth.  If you have a question that's not covered, or suspect that your loans aren't being handled properly, then I would start by contacing your servicer and if they aren't able or willing to help, contact the Student Loan Ombudsman.