Graduated from Veterinary School With All Sorts of Student Loans. – Kim

“Dear Steve,

Graduated from veterinary school in 2009 with ~$75k in federal student loans.

I am currently repaying federal student loans in the amount of ~$75,000. I’m currently on an extended, graduated repayment plan and my monthly payments are ~$430/month. Financially, I’ve been able to double up on my monthly payments (I’ve actually been paying $860/month) and am starting to chip away at the principal.

The reason I chose the extended, graduated repayment plan versus a standard repayment (which would put my monthly payments at ~$850/month)is because it had the smallest monthly payment and I like the OPTION of paying less. In other words I like the assurance that I don’t have a large payment to make if something comes up that month and I can’t pay what would have been my standard repayment amount ($850).

My question is whether there are any disadvantages to being on an extended graduated repayment plan if I’m going to be doubling my payments anyhow. In other words in the long run will I be paying the same total amount of interest as I would if I were on a standard repayment plan (which has the lowest total interest paid over repayment schedule)? Also since I’m paying down my principal, will my ‘graduated’ increase in upcoming years not be as high as projected?

Also I noticed that every month even though I’m paying twice as much as is required, half of my payment goes to interest alone. I’ve attached a summary of my last few payments, showing how these payments have been distributed between interest vs. principal. But if I’m paying down my principal shouldn’t the amount of interest paid each month also be decreasing? I don’t quite understand how the payments are allocated between interest and principal. Is there some magic formula for figuring this out?



Dear Kim,

Thank you for sending a screenshot of the loan payments.

As you can see in the screenshot, the amount applied towards interest varies for each payment. This is reflective to the amount of interest charged on the unpaid balance from the time of the last payment. Your daily interest charge appears to be around $14.

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The amount applied towards the original balance will increase as the original balance decreases. You will see this in the daily amount of interest charged dropping slowly as the loan is repaid.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

As you can see in the screenshot you sent, when paying just the minimum payment all of the $427.52 is going towards interest only and would not result in any reduction in the original balance at all. It was only when you started doubling up on payments that any went to the principal balance.

I honestly have no idea how your graduated repayment plan was calculated to know how the payment was calculated for adjustments.

The fact you did not lock yourself into a higher minimum was a smart move. While the total interest paid might be higher, consider it as the cost of insurance in case you need to cut back one month for an unexpected expense.

In the meantime it seems you are doing a great job with the double payments and actually reducing the balance owed.

Keep up the great work on eliminating this debt.

Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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