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Another thought, Michele - can you correct your check box with PHEAA to request that your loans for this year NOT capitalize the interest? Perhaps they will allow you to reverse this decision should you wish.

I recently re-enrolled in school to finish my degree with the help of student loans. Each letter to me detailing a loan amount comes with this statement:

This letter is to remind you that you are responsible for the interest which accruses on your unsubsidized Fedreal Stafford loan(s)....

Please be aware that federal regulations require that any payment received within 120 days of a Stafford loan disbursement be appied as a refund of that disbursement. This means that you could see a reduction in your principal balance, but no reduction in your accrued interest balance after a payment is made. This federal regulation benefits you by reducing the principal balance upon which interest accrues.

So it may not matter WHAT box you checked when you applied for the loan, payments made within 4 months of a disbursement should be applied to your principal, not accrued interest, which is even better.

Of course, I don't know that much about the legalities of student loan accounting, so YMMV.

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