Tuesday, February 15, 2011

Not So Fast....

In January, I wrote "Early Graduation from Graduated Payments?" In it, I asked if I should switch from a graduated repayment plan (incrementally increasing every two years) to a standard repayment plan (one with the same monthly payment). I misunderstood the charts I compared at the time (this one in particular):

I was under the impression that my graduated payments would start in February. So I updated my budget to reflect this change. You can imagine my surprise when I logged on to the Direct Loan Servicing website to discover that my next payment would be the same $229.21 I'd been paying for the past year.

Turns out, I'd have to pull the trigger to make the increased payment happen sooner than later. After talking to a DLS customer service representative (who didn't sound like she cared for her job much; then again I did call after 8PM<<<she probably resented missing "Glee" or something...anyway) I learned that my payment is scheduled to increase in November (exactly two years after I started repaying my loan :>). And when it increases, it won't be the above-mentioned $265.97; it will be $268.91. I decided to forgo initiating the higher payment. I was advised that if I start paying the higher amount (effective March 2011), I would pay $8,770.82 in total interest over the course of the loan term. On the other hand, I would pay $8,917.25 in interest (over the same time period), if I wait for the increase to occur in November. For you math junkies, that's a difference of $146.43.

I asked to keep things as they are and plan to make principal only payments on the higher interest loans in my portfolio of $36.76 (this is the monthly difference between what I thought I was going to have to pay and what I'm currently obligated to pay).

What do you think? Would you make additional principal payments -totaling $367.60- over the course of ten months? Would you go ahead and switch to the higher payment? Or would you sit back and stash the $36.76 each month?

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