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I just found out the monthly payments I am making are paying interest and the Federal Loan company and not my loan

Berkeley, CA |

I found out when calling to find my balance I am being charged $2 a day which if you pay $100 a month only $70 is going toward interest and barely anything towards my actual loan. I am in default and was told to set up a 9 month plan to remove my loan from default. However, I want to pay my loan not the collection agency racking in millions a year. How can I do this?

Attorney Answers 3


  1. You could try to remit your payment directly to the institution that loaned you the money. No matter who you pay, you may very well be paying mostly on interest. for the first several years. That is the way that compound interest works. Any additional (above $100) you pay should go directly towards the principal.

    Every legal matter is fact specific, and there are often nuances in every case. This is intended for comment only, and does not create an attorney client relationship.


  2. You need to pay more than $100 a month in order for your payments to start chipping away at the principal. The minimum payments are, as you stated, interest only.


  3. The 9-month plan (actually, 9 payments within 10 months) is a standard for getting a loan out of default. Just make sure you are paying and working with the correct entity and that you get the details of the payment plan in writing. There are great benefits to getting out of default through a real rehabilitation plan-- your past late payments will be corrected on your credit, for one. It may be a struggle to make the necessary payments to get out of default, but once you are, you can consolidate your loans through Direct Loan and apply for Income Based Repayment and maybe even Public Service Loan Forgiveness. Your rehabilitation payments should be fair and reasonable; so be prepared to discuss your current income and expenses honestly with the collector/creditor; if you get the runaround, talk to a student loan law attorney in your area by finding one at www.naca.net. Good luck.