Why Your Student Loan Balance Never Seems to Decrease

By Bonnie Gibbs Vengrow · March 24, 2023 · 5 minute read

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Why Your Student Loan Balance Never Seems to Decrease

Does it seem like your student loan balance never gets any smaller? This may ring true if you’re one of the 60% of borrowers who stopped making payments on their federal student loans during the Covid-19-related payment pause. (The moratorium also set the interest rate at 0%.)

But even when you start making monthly payments again, or if you graduated during the pandemic and are new to making payments, it still may seem like your loan balance isn’t budging much. Where do your payments go if not to the principal? The short answer: interest.

Understanding how and when student loans accrue interest can help you make smart choices about paying off your balance faster.

Key Points

•   Student loan balances may seem stagnant due to the significant portion of payments going towards interest rather than the principal.

•   Initially, a larger share of a student loan payment is allocated to interest, with a smaller amount reducing the principal.

•   Over time, the portion of the payment reducing the principal increases as the interest portion decreases.

•   Income-based repayment plans might result in payments that only cover part of the monthly interest, potentially causing the loan balance to grow.

•   The suspension of federal student loan payments during the pandemic halted the accrual of interest, effectively freezing loan balances.

What Makes Up a Student Loan Balance?

Your student loan balance is made up of two parts: the amount you borrowed plus any origination fees (the principal) and what the lender charges you to borrow it (interest).

Once you receive your loan, interest begins to accrue. If it’s a Direct Subsidized loan, the federal government typically pays the interest while you’re in school and for the first six months after you graduate. After that, the borrower is responsible for paying the interest.

If the loan is a Direct Unsubsidized loan or a private student loan, the borrower is solely responsible for accrued interest.

How Do Payments Affect My Student Loan Principal?

Most people pay a fixed monthly payment to their lender. That payment includes the principal and the interest. At the beginning of a loan term, a larger portion of your payment goes toward paying interest, and a smaller portion goes to the principal. But the ratio of interest to principal gradually changes so that by the end of the loan term, your payment is mostly going toward the principal.

How Does an Income-Based Repayment Plan Affect My Student Loan Balance?

Things are a little different if you’re making payments under an income-based repayment plan. Your payments are tied to your income and shouldn’t exceed a certain percentage of your salary. The interest, however, doesn’t change based on your income.

This means there may be situations where your monthly payment doesn’t fully cover the interest charges for that month, much less contribute to your principal. In fact, your student loan balance may actually grow over time, despite the payments you make.

How Has the Payment Pause Impacted My Student Loan Balance?

When the government suspended payments on federal student loans, they also hit the pause button on interest accrual. Essentially, the debt has been frozen in time since March 2020. When the moratorium ends, interest will likely start accruing again.

Note that the payment pause didn’t include private student loans. For a refresher on the balance and interest rates on private loans, contact your loan servicer. Be sure the company has your most up-to-date contact information on file, so you don’t miss out on important information about your loans.

Your student loan servicer may have changed since the last time you made a payment. To find out which company is handling your federal student loans, log on to the Federal Student Aid website; the information will be listed in your dashboard. You can also call the Federal Student Aid Information Center at 800-433-3243.

To find out which company is handling your private student loans, contact the lender listed on your monthly statement and find out if they still handle your loan. More often than not, they will. If your loan servicer has changed, the lender can give you the new company’s contact information.

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How to Pay Down Your Loan More Quickly

When it comes to repaying student loans, the key is to find an approach you’ll stick with. One way to tackle the debt is by making extra payments toward the principal. Even a little bit can help bring down the loan balance.

Another approach is to refinance to a lower interest rate. Or you could refinance to a shorter loan term. Or you could do both. Your payments may be higher, particularly if you switch to a shorter loan term, but you will be finished paying off the debt sooner. (Please note that if you refinance a federal student loan, you will lose access to federal protections and programs such as the Covid-related payment pause, the Public Service Loan Forgiveness program, and income-driven repayment plans.)

The Takeaway

The way loan payment schedules are set up is likely why your regular payments don’t seem to be making much of a dent to your balance or loan principal. Initially, more of your payment goes toward paying interest and less toward the principal. But gradually that changes so that by the end of the loan term, most of your payment is going toward the principal.

If you want to pay off your loan faster or generally pay less interest over the life of your loan, one strategy is to refinance student loans to a lower interest rate and/or a shorter loan term. If you decide refinancing makes sense for you, it might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to career services, financial advisors, networking events, and more — at no extra cost.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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