Why has my student loan balance gone up after 5 years?


Imagine this scenario: you borrow a few federal student loans while in college to pay your educational expenses. After your graduation, you start paying off your student loans each month for five years. But, after the five years, your student loan balance is higher than when you started. Why?

Research shows that about half of student loan borrowers don’t make any progress in reducing their student loans after five years. Only 51% of borrowers manage to reduce their balance, including graduates from for-profit, private, and public colleges.

With over 44 million borrowers in debt across the United States, experts claim that slowing student loan repayment is the leading cause of the growth in student loan debt.

Why are student loan balances increasing?

According to a new report, there are two main reasons for student loan balances increasing. These include:

1. Income-driven repayment plans

Federal student loan borrowers have access to various student loan repayment plans, such as the income-driven plan. This repayment plan allows you to base your payment on your family size, income, and state of residence.

The four main income-driven repayment plans include:

• REPAYE (Revised Pay As You Earn)
• PAYE (Pay As You Earn)
• ICR (Income-Contingent Repayment) 
• IBR (Income-Based Repayment) 

Although income-driven repayment plans reduce your monthly payments, they only provide short-term financial relief. This is because your interest accrues over the years, making your loan more expensive in the long run.

Luckily, with income-driven plans, you can have your student loans forgiven when you make consistent monthly payments for 20 to 25 years. But, you’ll owe income taxes on the amount forgiven.

2. Longer student repayment terms

For federal student loans, the standard repayment term is ten years. And, the longer your repayment plan is, the higher the interest on your student loans. Therefore, before choosing a longer repayment plan, it’s vital to understand its pros and cons.

Potential next steps

You can ensure your student loan balance doesn’t go up after five years by utilizing student loan refinancing and student loan consolidation options. For instance, student loan refinancing can help you pay off your student loans faster at a lower interest.

For more information about student loan repayment options, contact StudentLoanify.