If you’re wondering why your student loan payment increased, the answer is usually in the fine print of your loan agreements. Depending on your repayment plan and the structure of your loan, your student loan payment can go up as time goes on for several different reasons.
The good news is that there are ways that you can manage — and even reduce — your student loan payments. Find out which factors impact your monthly payment and what you can do to reduce or lock in your payments so you don’t pay more down the road.
Here are the four most common reasons why your monthly student loan payment may go up:
1. You signed up for the graduated repayment plan
If your income was low after graduation and you couldn’t afford your federal student loan payments on a standard repayment plan, you might have signed up for a graduated repayment plan, which allows you to pay off your loan over 10 years. With this option, your payments will start off low and gradually increase over time.
Presumably, as you progress in your career, you’ll earn more money and be able to afford higher payments. However, your payments increase every two years with a graduated repayment plan, whether you’re earning more money or not.
2. Your salary increased
For those struggling to keep up with their federal loan payments on a small salary, an income-driven repayment (IDR) plan can be a huge help. With an IDR plan, your monthly payments are capped at 10% to 20% of your discretionary income and your repayment term is extended to 20 to 25 years, depending on the plan. This reduces your monthly payments to make them more manageable.
However, the amount of your payments could change. Each year, you’re required to recertify your IDR plan, which includes providing proof of your current income and any updates on your number of dependents. If you get a raise or a new job with a higher salary, or you take on a second job, your income will go up and the government will adjust the terms of your IDR plan, which could cause your monthly student loan payment to increase.
3. You have a variable interest rate
All federal student loans have fixed interest rates, meaning the rate stays the same for the life of the loan. However, private student loans are different. When you take out private student debt, you can choose between a fixed interest rate or a variable interest rate.
Variable interest loans, also called floating interest loans, often have lower interest rates than fixed loans at first, but the interest rate can fluctuate over time depending on market trends. If your variable interest rate increases, your loan will accrue more interest and you will have to make a larger payment each month.
Student Loan Hero’s rate calculator can help you estimate how much interest you’re paying each month, and estimate how much of your monthly payment is actually going toward the principal of your loan.
4. You deferred your loans
In some instances, people defer their loans, pausing their monthly payments while they go back to school, search for work or deal with economic hardship. While temporarily deferring student loan payments can prevent you from becoming delinquent on your loans, it can also cause your loan balance to increase.
Depending on the type of loans you have, such as unsubsidized federal loans or private loans, interest will continue to accrue on your loan during deferment. That growing interest can cause your overall balance to increase and result in a higher total loan cost. Once you start making payments again, you could end up with a bigger bill.
If monthly payment fluctuations make it difficult for you to manage your student loans, there are two ways to get a fixed interest rate and a set monthly payment.
1. Switch to a standard repayment plan
If you’re on an IDR plan or graduated repayment plan, consider switching back to a standard repayment plan, which is the default plan. With the standard repayment plan, your payments are spread out evenly over 120 months, meaning you’ll have your loans paid off in 10 years.
While your payments might be higher, they’ll stay constant for the length of your repayment. And, since you’re paying off your loans faster, you’ll pay less in interest than under longer repayment plans where higher interest amounts will accrue.
2. Refinance to a fixed-rate loan
If you have private student loans with a variable interest rate, you can refinance them into a new loan if you qualify. By refinancing, you take out a new loan for the amount of your old one, paying your old debt off and working with a new lender.
When you refinance, you can choose a fixed interest rate loan and decide to extend or shorten repayment term. Depending on the terms you choose, including the interest rate and length of the new loan, refinancing your student loans could help you save money, too.
For more information about managing your loans, here’s how to decide if refinancing is for you.
Other options to lower payments
If you’re looking to save money on your student loan payments, there are some small things that you can do that, over time, could add up to appreciable savings.
- Enroll in auto-payments: Some lenders will reward you for enrolling in auto-pay by offering a small reduction on your interest rate, usually 0.25%. This can apply to federal and private loans. Along with saving money on your interest rate, automatic payments also relieve you of having to remember to pay your bill every month and getting hit with steep penalties if you forget to pay on time.
- Get rewarded for on-time payments: If you are diligent about paying your loans on time every month, a small number of lenders will offer a small interest rate reduction, typically between 0.25% and 0.50%. This is another way to develop positive financial habits and reap a benefit at the same time.
When you’re on a tight budget, there’s no room for fluctuating student loan payments. If you’ve ever wondered why your student loan payments went up, consider these factors that can affect your bill. By switching your repayment plan, securing a fixed interest rate or refinancing your debt, you can score better financial stability.
Student Loan Hero’s student loan calculators are a great tool to help you investigate the options and how they could impact your payments. Do your homework and find out what repayment plan is right for you, and see if you can take advantage of the benefits.
Alli Romano contributed to this report.