My IBR payment went up this year, such that my monthly payment is now larger than the new interest that I am accruing every month.  And so you would think that, after paying the newly-accrued interest, the entire rest of my monthly payment would go to principal.

Except it seems my servicer is applying some of the payment to previously-accrued, but uncapitalized, interest.

Is this compliant with the Dept of Education rules?  Do I have an option to tell them not to apply any of my payment to previously-accrued, but uncapitalized, interest?

Here’s an example to put some numbers on this (numbers have been altered slightly for privacy):

- Suppose my outstanding principal is $200,000.
- Suppose I have previously accrued but uncapitalized interest of $2,000.
  (since my previous IBR payment was lower and did not cover 100% of new interest)
- If my interest rate is 7.25%, I am accruing new interest at a rate of approximately $1200/mo.
- Further suppose my current IBR payment is approximately $1500/mo.

In this scenario, my payment includes ($1500/mo - $1200/mo) = $300/mo beyond the newly-accruing interest.

Is the loan servicer not required to apply the full $300/mo to principal?

Can they apply, say, only $200/mo to principal, and apply the remaining $100/mo to previously-accrued interest?