Yes, make interest payments on the loans while they are in deferment. Doing so will not remove them from deferment status - they will remain 'closed', but paying it will prevent the accrued interest from and becoming part of the principal once they do come out of deferment. Plus - it's a tax deduction for up to $2.5k.
Also- federal loans are not accruing interest from now through September 30th due to the pandemic. So any loans opened prior to that will not start accruing interest til then. Any payments made will go directly towards the principal.
Oh - forgot to add - from a credit perspective, scorewise, it doesnt matter much. The interest will cause your balance to exceed the original loan amount but FICO penalizes very little for that (maybe 10 points) - which you wont even see til you actually pay them down below the loan amounts and gain some points - though the "loan balances too high" reason code will always exist. FICO treats student loans differently than other installments.
Creditors don't seem to mind much either while the loans are in deferred status - but when they come out of deferment, they may prefer balances to be reduced below the original loan amounts fairly quickly - though I have no real evidence of that, just my thinking if considering from a lenders perspective.
Defer and pay as much as you can afford.
Let them advance the due dates also.
Hi @thornback and @Shooting-For-800 , could you elaborate a little more on your thoughts and your posts for me please?
I am trying to devise a strategy as my Parent Plus loans were originally expected to be deferred for two more years, and now, sadly, that is not the case and they will come out of deferment on September 30, when the Federal forbearance ends.
Q: IF I don't want my credit to be negatively impacted (potentially), or make creditors nervous, all of a sudden, because as you stated, creditors have not seemed to have minded, thus far, that the loans were in a deferred status and extended me a great deal of credit (IMHO), despite the "loan balances too high" coding.
Am I reading correctly that I should try to pay as much as possible now, during deferment and forbearance as it will go to principal and perhaps avoid the skittishness in September with my DTI?
I am trying to conserve cash, since everything seems so uncertain, but please let me know your thoughts on the matter.
Also, I should be able to contact the loan processors (mine are Federal and I have read that I should leave them that way) in order to find out how much is interest and how much is principal, correct?
I have never gotten any documents, since they are deferred, but I already called and asked for paper statements once they come out of forebearance.
Thanks so much in advance.
Please excuse me of my response seems a bit short - I'm on mobile and a little pressed for time but wanted to respond...
@CreditobsessedinFL wrote:Hi @thornback and @Shooting-For-800 , could you elaborate a little more on your thoughts and your posts for me please?
I am trying to devise a strategy as my Parent Plus loans were originally expected to be deferred for two more years, and now, sadly, that is not the case and they will come out of deferment on September 30, when the Federal forbearance ends.
Q: IF I don't want my credit to be negatively impacted (potentially), or make creditors nervous, all of a sudden, because as you stated, creditors have not seemed to have minded, thus far, that the loans were in a deferred status and extended me a great deal of credit (IMHO), despite the "loan balances too high" coding.
Am I reading correctly that I should try to pay as much as possible now, during deferment and forbearance as it will go to principal and perhaps avoid the skittishness in September with my DTI?
I am trying to conserve cash, since everything seems so uncertain, but please let me know your thoughts on the matter.
Also, I should be able to contact the loan processors (mine are Federal and I have read that I should leave them that way) in order to find out how much is interest and how much is principal, correct?
I have never gotten any documents, since they are deferred, but I already called and asked for paper statements once they come out of forebearance.
Thanks so much in advance.
Curious why the loans will come out of deferment earlier than originally scheduled??
If you loan balances currently exceed their original loan amounts due to accrued interest, it's a good idea to pay down the outstanding interest to bring the loan balances either equal to or beliw the original amounts. When loans cone out of deferment, the accrued interest is rolled into the principal balance, but the loan amount remains the same. So new interest on the loans once they come out of deferment will be higher because the principal balance is higher... that's why interest should be paid while the loan is deferred so at least the principal remains the same.
Yes, according to the Fed loan site, any payments made during the covid forbearance will go towards the principal balance - which, in your case as of now, does not include your already accrued interest because of the deferment. If the loans do open in September, that interest will be added to your principal - but if your principal is reduced now due to payments made now (depending on the $ amount of your payments), then the addition of the interest later may not put you that much over the original loan amount, if at all.
*Making payments now is just taking advantage of an opportunity to reduce your principal without interest taking half your payment. But it's something one should only do if they can without financial strain or risk.
(Hope all that makes sense)
Your loan servicer website should provide a breakdown of interest for each loan, but if you don't see that info, then yes, definitely contact them.
As far as DTI and current creditors - there's not much you can do about that short of paying the loan off completely. Your monthly loan payment (used to calculate DTI) will remain the same regardless of the balance and will affect your DTI for the life of the loans. Look into the various repayment plans so your monthly payment is capped at 10% of your discretionary income.
Now... I'm a big believer in having sufficient cash on hand - even more so given the current environment. Put cash away first - make that your priority, then throw something at the loans if you can. Worse case: your loans come out of deferment with balances over the loan amount. Your FICO scores will be fine. Creditors may not want to issue CLIs and high limits til they see the balances drop a bit - but there will be no major repercussions so - not the end of the world.
I am not a student loan expert but I do know that federal student loans do not hurt you credit score regardless of balances as long as their are no late payments. My wife's scores are in the low 800s with tons of student loans.
With my student loans, the more you pay while in forbearance, the farther out your payment become due. Some of mine do not have a payment due until the end of next year. I can pay each loan individually so one can focus on paying extra on the highest rates, etc.
GL!
@Shooting-For-800 wrote:I am not a student loan expert but I do know that federal student loans do not hurt you credit score regardless of balances as long as their are no late payments. My wife's scores are in the low 800s with tons of student loans.
Correct, scorewise it's a non-issue. But if your balances are over the original loan amount, you will see a small increase (~10 points, FICO 8 & 9 - not sure about the older versions) once you get them paid down below the oriignal loan amount. But 10 points in FICO land can be pretty insignificant.
The potential "issue" comes in with the amount of debt-owed/monthly DTI when applying for new credit/loans and how each individual lender evaluates your current debt load.
With my student loans, the more you pay while in forbearance, the future out your payment become due. Some of mine do not have a payment due until the end of next year. I can pay each loan individually so you can focus on paying extra on the highest rates, etc.
GL!
**Make sure your account is set to push out the payment due date. Some are auto-set to do this, others need to be set to do this -- depends on the servicer; for example, Nelnet loans are auto-set to push out the due date and you have to tell them not to push it out if you don't want it.
@thornback wrote:Please excuse me of my response seems a bit short - I'm on mobile and a little pressed for time but wanted to respond...
@CreditobsessedinFL wrote:Hi @thornback and @Shooting-For-800 , could you elaborate a little more on your thoughts and your posts for me please?
I am trying to devise a strategy as my Parent Plus loans were originally expected to be deferred for two more years, and now, sadly, that is not the case and they will come out of deferment on September 30, when the Federal forbearance ends.
Q: IF I don't want my credit to be negatively impacted (potentially), or make creditors nervous, all of a sudden, because as you stated, creditors have not seemed to have minded, thus far, that the loans were in a deferred status and extended me a great deal of credit (IMHO), despite the "loan balances too high" coding.
Am I reading correctly that I should try to pay as much as possible now, during deferment and forbearance as it will go to principal and perhaps avoid the skittishness in September with my DTI?
I am trying to conserve cash, since everything seems so uncertain, but please let me know your thoughts on the matter.
Also, I should be able to contact the loan processors (mine are Federal and I have read that I should leave them that way) in order to find out how much is interest and how much is principal, correct?
I have never gotten any documents, since they are deferred, but I already called and asked for paper statements once they come out of forebearance.
Thanks so much in advance.
Curious why the loans will come out of deferment earlier than originally scheduled??
If you loan balances currently exceed their original loan amounts due to accrued interest, it's a good idea to pay down the outstanding interest to bring the loan balances either equal to or beliw the original amounts. When loans cone out of deferment, the accrued interest is rolled into the principal balance, but the loan amount remains the same. So new interest on the loans once they come out of deferment will be higher because the principal balance is higher... that's why interest should be paid while the loan is deferred so at least the principal remains the same.
Yes, according to the Fed loan site, any payments made during the covid forbearance will go towards the principal balance - which, in your case as of now, does not include your already accrued interest because of the deferment. If the loans do open in September, that interest will be added to your principal - but if your principal is reduced now due to payments made now (depending on the $ amount of your payments), then the addition of the interest later may not put you that much over the original loan amount, if at all.
*Making payments now is just taking advantage of an opportunity to reduce your principal without interest taking half your payment. But it's something one should only do if they can without financial strain or risk.
(Hope all that makes sense)
Your loan servicer website should provide a breakdown of interest for each loan, but if you don't see that info, then yes, definitely contact them.
As far as DTI and current creditors - there's not much you can do about that short of paying the loan off completely. Your monthly loan payment (used to calculate DTI) will remain the same regardless of the balance and will affect your DTI for the life of the loans. Look into the various repayment plans so your monthly payment is capped at 10% of your discretionary income.
Now... I'm a big believer in having sufficient cash on hand - even more so given the current environment. Put cash away first - make that your priority, then throw something at the loans if you can. Worse case: your loans come out of deferment with balances over the loan amount. Your FICO scores will be fine. Creditors may not want to issue CLIs and high limits til they see the balances drop a bit - but there will be no major repercussions so - not the end of the world.
Thank you so much for the detailed reply @thornback , I wish I had known to ask the interest question on the loans sooner, I kick myself regularly that I found MYFICO so late in the game. I will call now and see how much interest has accrued and see what I can afford to pay towards the loans, if anything during this critical time, between now and September to attack the principal amounts, if it makes financial sense.
To satisfy your curiosity, and it pains me to write this, I just found out that my kid that I took the loans out for, has decided not to go back after this COVID crisis, so the loans will now come out of deferment much earlier than anticipated. Hopefully this is just a pause, but it is what it is, and I have to deal with it head on.
Makes me glad that I started building credit when I did, at the accelerated pace that I did, because this will most definitely affect my DTI, as you so eloquently pointed out. I need to reevaluate my plans overall, me thinks.
I will contact the loan servicer to see the options for the best repayment structure as you outlined to keep it below 10%, thank you again.
@CreditobsessedinFL wrote:Thank you so much for the detailed reply @thornback , I wish I had known to ask the interest question on the loans sooner, I kick myself regularly that I found MYFICO so late in the game. I will call now and see how much interest has accrued and see what I can afford to pay towards the loans, if anything during this critical time, between now and September to attack the principal amounts, if it makes financial sense.
To satisfy your curiosity, and it pains me to write this, I just found out that my kid that I took the loans out for, has decided not to go back after this COVID crisis, so the loans will now come out of deferment much earlier than anticipated. Hopefully this is just a pause, but it is what it is, and I have to deal with it head on.
Makes me glad that I started building credit when I did, at the accelerated pace that I did, because this will most definitely affect my DTI, as you so eloquently pointed out. I need to reevaluate my plans overall, me thinks.
I will contact the loan servicer to see the options for the best repayment structure as you outlined to keep it below 10%, thank you again.
You're welcome! I've actually heard about quite a few students that have decided not to return in the fall due to Covid - so you're certainly not alone among parents... Hopefully, we'll get through this pandemic soon enough that our students are able and willing to return without losing too much time... wait and see game I guess.
Also - I must to correct myself on the repayment plans -- it is different for Parent Plus loans (sorry I neglected to state/research that initially and was commenting based on my knowledge of student loans with Income-Based Repayment (IBR) options), not Parent Plus loans.
The only repayment option available to you is the Income-Contingent Repayment Plan (ICR) plan. The cap for this is actually 20%, not 10%.
Read the studentaid.gov site:
https://studentaid.gov/manage-loans/repayment/plans/income-driven
"This plan is the only available income-driven repayment option for parent PLUS loan borrowers. Although PLUS loans made to parents can’t be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).
ICR Payments:
The lesser of the following:
- 20 percent of your discretionary income or
- what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
Aplogies for that portion of misinformation & confusion!