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Why Your Student Loan Balance Never Seems to Decrease

January 24, 2019 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Why Your Student Loan Balance Never Seems to Decrease

Does it seem like your student loan balance never gets any smaller? You’re not the only one—37% of American adults under 30 are paying off student loans . But why exactly does your balance appear to remain steadfast, even after months of dutiful payments? Well, the short answer is that your student loan balance increases as interest accrues.

And your loan is amortized, which means that your payments might be only covering those interest costs while the underlying loan continues to rack up new interest charges every day. Understanding how your student loans accrue interest can help you make smart choices about paying off your debt faster.

What Does A Balance Mean on a Student Loan Account?

Your student loan balance is the amount of money owed to your student loan providers, including both the principal and the interest accrued. When you first take out student loans, your balance is just the amount you’re borrowing and any origination fees. As time goes on, however, many students’ loan balances actually begin to grow.

Some loans accrue interest while you’re in school, during the six-month grace period after graduation, or in periods of deferment or forbearance. The longer you have student loan debt to your name, the more time interest has to accrue. Once your grace period is over, you might notice that your student loan balance is larger than the amount you initially borrowed.

How Do I Find My Student Loan Balance?

The first step in tackling your student loan balance is knowing exactly what you’re up against. The quickest way to determine your total federal student loan balance is to visit the National Student Loan Data System (NSLDS), which is the central database of student aid for the U.S. Department of Education. This database is the main repository of all federal student loan information, including what loans you owe.

The National Student Loan Data system uses information gathered from government loan agencies and loan servicers to keep their data up to date and is a reliable source if you’re looking for a detailed overview of your federal student loans. Their info typically includes the dates your loans were disbursed, any grace periods, and even the date you paid off any old loans.

NSLDS does not, however, aggregate data about private student loans. This means that if you took out any loans to finance your education that didn’t come from the federal government, you may need to use other means to track down your total student loan balance. For your private loan information, reach out directly to your lender. You can also review your credit report find information on all your debts, including student loans.

How Does Interest Affect My Student Loan Balance?

Most people pay a fixed monthly payment to their student loan service provider. That payment includes the principal and the interest.

The confusing part is that although your monthly payments remain the same each month, the percentage of your payment that goes to the principal amount on your loan changes over time. This means that, in many cases, when you first begin paying off your student loans, most of your monthly payments will go toward interest.

That interest adds up fast. For example, imagine you have a $100,000 student loan with a 5% interest rate. To find out how much interest you are charged every day you calculate your balance times the interest rate divided by 365.

For our example, it looks like this:

$100,000 (student loan balance) x .05 (interest rate) = $5,000

$5,000 ÷ 365 = $13.70

In that scenario, you are being charged nearly $14.00 in interest alone, every single day. Multiply that by 30 days and your student loans are accruing around $410 per month in interest. This means that if you pay $500 on your student loan every month, $410 of that payment is going toward interest, which means only $90 goes to your principal balance.

If you’re making payments under an income-driven repayment plan, things are a little different. Your payments vary according to your income, which means that your payments should never exceed a certain percentage of your salary.

The interest you are charged, however, does not change according to your income. This means that there may be situations in which your monthly payment doesn’t even fully cover the interest charges for that month, much less contribute toward your underlying principal balance. This means that in addition to not getting smaller, your student loan balance will actually grow over time, despite the payments you make.

Let’s look at the example above again. If you have a $100,000 student loan with a 5.00% interest rate, your monthly interest accrual is around $410. If, however, you’re only paying $350 because you’re on an income-based repayment plan, you wouldn’t even be covering the monthly interest costs on your loan.

That means that despite your monthly payments, your student loan balance would actually increase by $60 every month because that is the difference between the interest accruing each month and the amount you’re paying off.

Making a Dent in Your Student Loans

Once you’ve got a handle on your student loan balance and how interest impacts the balance, make an action plan for tackling your loans. When it comes to student loan repayment, it’s important to understand your options so you can make the best decisions for your financial future.

One debt payoff strategy is to focus on the highest interest loan first—also known as the debt avalanche method. Take a look at your loans and figure out which one has the highest interest rate.

This is where you would focus your payoff efforts, after you make the minimum monthly payments on your other loans every month. By focusing on the loan with the highest interest rate first, borrowers may be able to reduce the amount of money they spend on interest.

Another payoff option to consider is refinancing your student loans. If your financial situation has improved since you initially took out your loans, refinancing may be a way to obtain a lower interest rate.

Refinancing is an option for those with federal loans, private loans, or both. However, refinancing can impact your eligibility for programs like Public Service Loan Forgiveness, so be sure to consider all of your options when deciding whether to refinance.

Thinking about refinancing your student loans? Learn more about how SoFi can help you take charge of your loans.


Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
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