Opening your mail and learning that your student loan payment increased can be shocking. It can also be worrisome if you’re on a fixed income and aren’t sure how you’ll afford the higher payment. If this is you, you’re not alone, and we’re here to help.
In this article, we’ll explain some common reasons why student loan payments increase. We’ll examine the differences between federal and private student loan increases and the next steps to take if you can’t make your student loan payments.
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The student loan landscape is complicated. There are federal and private loans and many different types of each. There are also numerous repayment plans, programs, and requirements. It’s no wonder why one-third of undergraduate student loan borrowers experience default.
If you’re unsure whether you have private or federal student loans, check your student loan documents or visit your lender’s website.
The federal government partners with student loan servicers—companies that are responsible for processing and managing your loans. Private lenders include banks, credit unions, and online lenders specializing in student loan processing.
Once you know your student loan type and can identify your loan servicer or lender, it will be easier to determine why your student loan payment increased.
Federal student loans have fixed interest rates, so your payment won’t increase due to fluctuating rates. However, there are a few other reasons your payment could go up.
There are many different federal student loan repayment plans, including standard, graduated, extended, and income-driven repayment plans. For example, if you changed from an extended payment plan to a standard one, your payment could go up.
If you selected a graduated repayment plan, your payments will increase every two years. If this repayment plan no longer works, you can change to a different one.
If you consolidate multiple student loans, you combine them into one payment. Consolidating loans streamlines the payment process, but it can also result in one higher payment when you’re used to making smaller amounts more frequently.
If you deferred your student loans or entered into forbearance, you will eventually resume paying them. Deferment periods vary depending on your personal circumstances, but forbearance typically lasts up to 12 months.
If interest is accruing during this time, your principal balance will rise and thus may increase the minimum payment required.
If you have an income-driven repayment plan, you have to recertify your information each year. If your income goes up, your payments could go up.
Income-driven repayment plans are also based on your family size. If you go through a divorce or suffer a loss, your smaller family size might create an increased payment.
You must recertify your family size and income each year if you have federal student loans on an income-driven repayment plan. If you don’t, your monthly payment can increase, and you could be automatically charged a standard repayment plan rate instead.
If you’re still unsure why your payment increased or you believe it increased in error, it’s time to contact your student loan servicer.
If you’re unsure who your loan servicer is, the Student Aid government website keeps a list. You should be able to locate the company that emails you or sends you mail regarding your student loan payments.
It’s best to call your student loan servicer’s customer service line to get answers to any questions you may have regarding your student loan payment increases. Here are the contact numbers for several student loan servicers.
If your loans are already in default, contact this servicer.
Private student loans are different from federal loans in many ways. For example, federal loans have fixed interest rates, and some private loans have variable rates. Additionally, there are many types of repayment plans for both federal and private student loans.
If your private student loan payment increased, and you’re not sure why, here are some common reasons why it could have happened.
If your student loan has a variable rate, it’s possible your interest rate increased, resulting in a higher student loan payment. Usually, lenders notify borrowers when rates change.
If you recently refinanced your loans to a shorter repayment term, your payment could have gone up.
If you’re unsure why your student loan payment has increased, contact your lender for clarification. Your lender’s website should list ways to contact them by phone, email, or via online chat. For situations like an increased payment, a phone call is best.
Explain to your student loan servicer that your student loan payment is higher than expected, and ask the customer support agent to review your file. If there is a valid reason for your payment increase, but you can’t afford higher payments, ask about your options.
Ask the expert
Typically, lenders and loan servicers will send out a letter or other form of notification that the minimum payment is increasing. Depending on the reason, I would expect this to come at least a month before the increased payment is due.
If you can’t afford your increased student loan payment, it’s important to tell your student loan servicer or lender immediately. Many programs are designed to help borrowers who fall behind on student loan payments. Here are some alternate options your lender or servicer might offer.
An income-driven repayment plan bases your federal student loan payment on your family’s size and income. If you can enroll in one, these plans have more benefits than deferment or forbearance.
Another option is to ask your lender if you’re eligible for deferment, which pauses your student loan payments for a period of time. If you have Direct Subsidized Loans, Subsidized Federal Stafford Loans, or Federal Perkins Loans, your loans won’t accrue interest during deferment. Some private lenders offer deferment options too.
You can pause your federal student loan payments with forbearance, but your loans will accrue interest. Because of that, you could owe more on your loans at the end of your forbearance period. Many private lenders also have forbearance options.
Refinancing your loans is another option that could enable you to lower your student loan payment if you lengthen your term and lower your interest rate. The downside is if you refinance your federal loans into private loans, you lose many of the benefits and protections that federal loans offer.
If you have already defaulted on your federal loans, you might be eligible for the Fresh Start program. This temporary program lasts through September 30, 2024. The program’s goal is to help borrowers in default get back on their feet and current with their student loan payments.
In addition to contacting your lender to find options to help you prevent default, here are other tips that can help you afford higher student loan payments.
Budgeting can help you track your spending and manage your money more efficiently. While many think budgeting is restrictive, it gives you freedom to spend.
With budgeting, write down your income and then subtract your expenses. When you track your bills, it’s easier to see what costs you can cut. This makes paying for a higher student loan payment easier if you get one.
It can also help to get an additional income stream if your student loans increase. Working part-time, even for a few months, can help you afford your payments and even pay off your student loans faster.
Depending on your repayment plan, this may increase future minimum required payments.
Finally, explore loan forgiveness options. While you have to meet specific criteria to qualify for some options, like Public Service Loan Forgiveness (PSLF), getting the remainder of your student loan balance forgiven after a certain period of time is possible.
If loan forgiveness programs apply to you, it is important to reach out to a loan advisor to make sure you are doing everything required of you to keep track and file the necessary reports to qualify for forgiveness.
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