Why are My Student Loans Not Going Down?

Every month you open your student loan bill and give a small groan. Why aren’t my student loans going down? You may think that you will be paying student loans for decades to come, but you have more options than you know!

How to Find My Student Loan Balance

When you first realize that your student loan balance is not going down, you need to educate yourself about your student loans. Let’s be honest– most of us did not fully understand our student loans when we first took them out. Now is the time to sit down with your computer and your paperwork and get organized. Hey, a little time now can save you a lot of money. 

First you need to find your student loan balance. The easiest way to determine the total balance of your federal student loans is to go to the National Student Loan Data System (NSLDS). Once you log in to the data system, you will see different colored rings on the dashboard that show your total federal student loan amount, grant amounts, and any other federal aid.  

Student Loan Principal vs. Interest Explained

Within the National Student Loan Data System it should list the principal amount and the interest. The principal amount is the original amount of money you borrowed when you first took out your loan. The principal balance will have increased for every year or semester that you attended school and took out new loans. If you look at the NSLDS, the interest total that they give you will only be the interest for that billing cycle. 

How Does Interest Affect My Student Loan Balance?

When you look at your student loan lender’s website, it will typically show you that you have a fixed monthly payment. The payment is a combination of principal and interest. When you first start paying on your student loans, most of the money will go towards the student loans’ interest. However, over time, more and more of the payment will go towards the loan’s principal until eventually you can eliminate your loan entirely. A smaller principle also generates less interest, compounding your savings over time.

Why Does it Seem that My Student Loan Balance is Going Up?

Something unique to federal loans is income-driven repayment plans. Income-driven repayment plans allow borrowers to make payments based on what they can afford versus what they owe. The loan’s monthly interest may be higher than what you contribute to the balance, causing the student loan balance not to decrease but rise each month because the monthly payment does not cover the interest. 

Another reason that your student loans may be increasing is an extended payment plan. An extended repayment plan is designed to be paid off in 20 years or more. It may take years with this type of repayment plan to drop below the original loan amount and start paying on the principal balance.

How to Make a Dent in Your Student Loans

Once you understand how interest affects your student loan balance, you can use a few methods to make a dent in those balances. The obvious strategy is increasing your monthly payment amount or making extra payments so you can whittle down your principal and knock down those interest rates as fast as possible. 

Write down a list for your various student loans that includes the principal amount, total debt balance and interest rate for each loan. You could pay off the loan with the highest interest rate first, which would reduce the amount of money spent on interest each month and compound your savings over time. 

Conversely, focus on the loans with the smallest debt balance. Pay them off first and get them out of the way– there’s a certain mental gratification to checking something off a list. 

Another option, an especially attractive one if you have a good job and good credit, is refinancing your student loans. If you’re like most of us, your life has changed markedly in the years since you took out said student loans. They are student loan agreements that were formed when you were still a student and the future and stability of your finances were uncertain. Renegotiate your loans to reflect your more stable income and lifestyle.

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