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My wife and I have recently paid off our auto loans and are trying to tackle our pesky student loan debt next. Following the "debt snowball" pattern, we've applied our monthly car loan payment to my student loan and are happily watching the balance go down...much too slowly! I've seen questions on this site (such as this one), but I think this may be something different. Relevant data below:

Four (4) original loans with the following original balances:

  1. $5,500.00
  2. $6,500.00
  3. $7,500.00
  4. $1,300.00

Total Original Balance: $20,800.00

We made the minimum payment of $278.97 for the first 26 payments, then increased the payment to $500.00 once we paid off our car. We have made 4 such payments, are seeing the increase in our principal payment every month.

While doing my taxes this year, I decided to add up the total principal just to see how far we've come. What I found has me completely confused: it turns out that we have, over the life of the loan, paid $6,072.26 to principal alone (this information comes directly from the "Payment History" of our loan management website). Now, I didn't have to go to college to learn that 20,800 - 6,072.26 = 14,727.74. That's what I would expect the current principal balance to be. However, on our "Loan Summary" page, the remaining principal balance (not including interest accrued) is $18,168.56. With interest accrued in the last month, it's $18,259.89.

I feel like I have at least a basic understanding of how interest accrual works (having spent a great deal of time reading through this site's answers), but this has me completely stumped. Before I call the loan customer service and ask what's going on, I felt it would be wise to make sure I'm not missing something completely basic. If this is really just how it's supposed to work, I may as well just take the extra car payment money and put it to some other use!

My ultimate question is: why does the value for "remaining principal balance" differ from what I can prove that I have paid in principal over the life of the loan?

Just in case it helps, here's the entire payment grid so far:

Payment Grid

  • This looks like you are getting a wildly variable interest rate on your loan. What are the specific loan terms? I.E how long is each of the original loans for, and at what interest rate(s)? Is the combined loan for a different term and rate? – user132278 Mar 13 '16 at 19:31
  • @user132278 The loans have a fixed interest rate of 6.8% over a 10-year "standard" repayment period. The reason the interest payments fluctuate is due to the payment date (which is why I included it in the chart). As best as I understand it, if I paid on the exact same day each month, the interest would decrease by exactly $1.00 each month over the life of the loan. Paying earlier than the due date (14th of each month) means less interest had accrued since the last payment. Although, I could be mistaken--I know what my loan statement says, but I don't pretend to be an expert by any means. – jtlovetteiii Mar 13 '16 at 20:30
  • Do you have previous quarterly or annual statements on this loan? What about from the beginning of the loan term? If so, what do they say the remaining principle is? It looks like the initial principle was around $24k according to what you have posted so far. – user132278 Mar 13 '16 at 20:36
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Using the facts in your comment:

  • 6.8%
  • 10 year term
  • 278.97 minimum monthly payment

I use the pmt function in excel and the goal seek tool to determine an original balance of ~$24,241.33

Taking into account the statement in the questions that you have paid $6,072.26 in principal gives an estimated current balance of

    $24,241.33 
   - $6,072.26 
 or $18,169.07

which almost exactly matches your current balance statement of $18,168.56 a difference of 51 cents.

Is it possible that during the time you were in college the accumulated interest caused the balance to grow from 20,800 to 24,241? This could happen if the loans were unsubsidized.

  • 1
    +1. The interest was probably capitalized (added to the principal) when the grace period ended and payments began. – Ben Miller - Reinstate Monica Mar 14 '16 at 5:18

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