What You Need to Know: Your Student Loan Balance Might Be Increasing

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Ember M.
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If you're like most people, you probably don't give much thought to your total loan balance. You simply make your monthly payments and hope for the best. But what if I told you that there are numerous ways your total loan balance might be increasing without you even knowing? It's true! In this article, we will discuss different methods to avoid this. So read on to learn more!

What Are the Different Types of Student Loans?

A student loan is a type of loan that is specifically designed to help students pay for their educational expenses. There are two main types of student loans: federal and private

Federal student loans are provided for by the government and have fixed interest rates. Private student loans, on the other hand, are provided for by private lenders and have variable interest rates. Both types of loans have different repayment options; federal student loans typically have shorter repayment terms than private ones. 

Private student loans typically have longer repayment terms; students can choose to either defer their loans or make payments while in school. Deferring a loan means that the borrower does not have to generate any payments until after they graduate. Making payments while in school means that the borrower will begin making payments immediately but will receive a reduced interest rate.

What Makes Loan Balances Go Up?

Here are some reasons your total loan balance may increase.

Delays in Paying the Loan Back

If you have federal student loans, your loan balance may go up if you delay paying back your loan. This is because federal student loans accrue interest, which is added to your student loan balance. The amount of interest that piles up depends on the interest rate of your loan, as well as how long you delay making payments. If you're having trouble making payments on your federal student loans, you have various alternatives available. You can contact your loan servicer to discuss your options and find a repayment plan that works for you.

what increases your total loan balance

Choosing an Extended Payment Plan

Your student loan balance can increase for different reasons, but one of the most common is accrued interest. When you make your monthly student loan payment, a portion of that payment goes toward the gathered interest on your loan. The longer you take to repay your loan, the more the interest will mount; thus, the higher your balance will be.

Another reason why your loan balance might rise is if you choose an extended payment plan for your private student loans. With an extended payment plan, you'll make lower monthly payments over a longer period of time. While this can make repayment more affordable in the short term, it will also result in paying more interest over the life of the loan, which can increase your balance.

If you're worried about your student loan balance getting out of control, consider making extra payments when you can or refinancing to a lower interest rate. By taking these steps, you can help keep your balance manageable and avoid accumulating too much debt.

Paying Less Than the Requested Amount

One of the primary reasons that student loan balances rise is that people are paying less than the requested amount each month. When you do this, the unpaid interest gets added to your principal balance, and then interest is charged on that new, higher balance.

This can cause your monthly payment to go up, and it can also make it take longer to pay off your loans. Additionally, if you have a variable interest rate, paying less than the minimum can cause your interest rate to increase, which will also add to your balance.

If you're struggling to make your monthly payments, there are other options available, such as deferment or forbearance. These options will allow you to temporarily stop making payments or lower your payment amount, which can help you get back on track.

Missing Or Deferring Payments

One of the chief reasons why student loan balances go up is because payments are missed or deferred. Private loans typically have higher interest rates than federal student loans, so even one missed payment can cause the balance to increase rapidly. 

In addition, student loan interest will continue to accumulate while payments are deferred, which can also lead to a significant rise in the balance. As a result, it is important to remain aware of the consequences of missing or deferring student loan payments in order to keep the balance as low as possible.

what increases your total loan balance

Federal Income-Driven Plans 

Many people choose federal income-driven repayment plans in order to lower their monthly loan payments. However, these plans can sometimes cause loan balances to go up instead of down. This is because monthly payments are usually only applied to interest, and not to the principal amount of the loan.

In addition, if interest accrues during periods of deferment or forbearance, it may be added to the principal balance (capitalized) when the repayment plan resumes. As a result, it is important to carefully consider all options before choosing an income-driven repayment plan.

When you make your monthly loan payment, a portion of that payment goes towards reducing your principal balance while the rest is applied to your interest payments. However, there are certain situations where your loan balance can actually increase, even if you're making all of your payments on time.

One common reason for this is if you have unpaid interest that's been capitalized - this means that the unpaid interest is added to your principal balance, and then starts accruing interest itself. As a result, it can quickly become very costly to let even a small amount of interest go unpaid. If you're unsure about why your loan balance is climbing, it's always best to contact your lender directly to get more information.

Final Thoughts

The less you need to take out in loans, the less interest will amass over time - meaning you'll save money in the long run. By keeping these things in mind, you can make smart choices that will help keep your total loan balance manageable after graduation.

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