Negative Amortization

Negative amortization occurs on a loan when the monthly fixed payment amount is not high enough to satisfy the amount of interest that accrues on the loan each month. This typically occurs on loans that are on the ICR (Income Contingent Repayment plan). Accounts accrue negative interest only when they are in repayment periods. Negatively amortized interest capitalizes (is added to the principal balance) once a year on June 30th, or if the loan is in deferment or forbearance on June 30th, at the end of a deferment or forbearance period. Negative interest can only capitalize up to a maximum of ten percent of your original loan balance at the time you first entered repayment. If you reach your negative amortization capitalization limit, the negative amortizing interest will continue to accrue but will not capitalize yearly. Your loans come out of negative amortization when the fixed payment amount is raised above the amount of interest accruing each month.