I have posted before stressed out and drowning in student loan debt. I finally got a handle on it and got the balance down. I took out $72,500 in student loans. Most for my graduates degree. I never missed a payment, but on the income based plans, my balance was about to touch $90,000 ($17,500 in capitalized interest) after 5 years. I wasn’t sleeping. I was depressed. So I did the following:

First, I switched to REPAYE. My payment is $35 a month. Instead of paying extra every month, I save it up and make an annual extra payment on one loan. That way the government is forgiving the maximum amount of interest. I keep my payments low by using tax deductions like IRA contributions and student loan interest deduction.

I went after subsidized loans (these had the least amount of outstanding and capitalized interest.) I paid off all the interest on these loans until the loans were down to their original loan balance.

Now I pay $2500 in interest (mostly capitalized interest) a year for my tax deduction. Then I go after the principle in the subsidized loans like crazy. I try to focus on one or two loans, leaving interest to accrue on the others.

Now I am down to $62,500 in loans with $12,500 in capitalized interest. I feel amazing!

Bottom line is to pay less interest!

But here is the sad truth I learned about capitalized interest. It is a deceptive loan practice. Capitalized interest is an ADDITIONAL loan from the government to refinance your outstanding interest into the loan. In essence, I see it as a way for the government to raise your interest rate due to your lack of credit worthiness. (if you were credit worthy, you would have paid off the interest in full every month)
I was paying an extra 1.6% in interest a year due to capitalized interest on the income based repayment plan. Now with REPAYE and lower cap int, I’m only paying .6% extra a year.

Good luck!