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What can cause your total student loan balance to go up and how can you reduce your monthly payments?

Federal student loan borrowers will have to begin repayment next year that don’t qualify for debt cancellation. Here’s how to keep your balance from rising.

How to stop your student loan balance from increasing

The student loan forbearance and moratorium on interest accruing implemented at the beginning of the covid-19 pandemic, and extended several times since, is coming to an end. Some borrowers may be fortunate and qualify to have the remainder of their debt cancelled under President Biden’s federal student loan forgiveness program.

However, starting 1 January 2023, federal student loans will once again amass interest and borrowers will have to begin repayments on the remainder of any balance they have. Even though you start repaying your loan on time, you may notice that the balance keeps going up month after month. The likely culprit, your payment plan is inadequate.

Also see:

Why isn’t the balance on my student loans going down?

Generally, if you make timely monthly payments on a student loan according to the repayment plan agreement you should pay off the debt on schedule. However, that isn’t the case for many borrowers as life’s little road bumps force them to miss payments or sign up for an alternative repayment plan.

While the new plan may give you some breathing space with an easier to budget lower payment, that amount may be too low to cover the interest that needs to be paid on a monthly basis. Interest on most student loans accrues daily on the principal that a borrower owes, any interest that doesn’t get paid can end up being tacked on to the principal.

This means that your balance will increase, raising the amount of your total repayment and essentially you will start paying interest on interest. This situation can lead to a vicious cycle causing your loan balance to balloon and you wind up repaying much more than you otherwise would have.

How to lower your student loan debt

A Loan Simulator tool provided to borrowers by the Department of Education can help calculate payments on student loans and choose an option that best meets your needs and goals. As well you check if it would be better to consolidate your student loans.

The Education Department also offers some tips for paying off your student loan debt. Those that can are advised to begin paying as soon as possible, even if you’re not required to do so to avoid interest accumulating. This includes if you are still at school or during your grace period.

Try to pay more than the minimum payment so that you can chip away faster at the principal of your loan targeting higher interest loans first. It’s recommended to use your tax refund toward paying down your student loan, using that potential tax deduction from paying interest on the loan to lower your burden.

Those that sign up for direct debit to automatically have your payments sent each month get the added benefit of getting 0.25 percent interest rate deduction on their loan. Additionally, you don’t have to worry about a late payment but careful not to incur overdraft fees from your bank.

Finally, research whether you qualify for loan forgiveness and special repayment programs. Members of the United States Armed Forces, public servants, teachers and other, under certain eligibility requirements, may qualify for the programs. Also check with your employer to see if they offer any form of student loan repayment assistance.


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