Student Loan Interest Subsidy Explained Avoid Negative Amortization

[00:00:00]Now, there are a few other features about this plan that we want to make sure that we're we're sharing with you today. One of those is called the unpaid interest subsidy.

[00:00:09]>> So, when we think about monthly interest, right, let's actually take a step back. Student loan interest is calculated on a simple daily interest formula, right? So, interest acrru each day based out based off of how much of the loan is outstanding, based off of the interest rate. Um, and so we get a monthly interest acrruel. So that just happens from I pay my bill one month and then between that and my next due date, that's my monthly interest that's acrewing. And so the unpaid interest subsidy is essentially saying if my payment is $100 and my interest is acrewing at $1,000, the government is going to subsidize or pay the difference. Right? So we have if I'm doing a 100 and it's a,000 900 of that is going to be subsidized or paid by the government and that is of any range but as soon as your payment goes beyond what that monthly interest acrruel is you no longer get the benefit of that interest subsidy. Um I think what's really important here is this whole goal of this is that it doesn't lead to negative amortization which just means that the balance is increasing even though you're making payments. Right? that sets us different from other plans. It is very similar to how save treated unpaid interest. Couple things that excludes.

[00:01:27]This does not include any interest that you have accured thus far at the point of entering the plan. So that does stay in its own bucket. Um and it's only that monthly interest from one bill to the next bill.

[00:01:39]>> When you say one bill to the next bill, we're talking about the due date, right?

[00:01:44]repayment assistance plan is very specific about making sure that you're making ontime payments. You don't want to be even one day late or you potentially lose.

[00:01:54]>> You have to make sure that these payments are on time, which is defined as paid in full on or before the due date. So, I think what I'm telling clients is if you are going to go into the WAP plan, make sure you set up autopay and set it up to come out a couple days before that due date just to make sure that you get the full benefit of the plan. Um, we will talk later about forgiveness, but on time is also the requirement to have that month count for forgiveness.