There’s nothing that can ruin your day more than noticing your monthly payment on your student loans increased. If you’re at a loss for what caused the sudden change, you can probably find the answer somewhere in the fine print of your loan agreement. Depending on your loan’s terms, the monthly payment can increase over time for a variety of factors.
While watching your payment increase can be an unnerving and unexpected experience, the good news is that there are several strategies for managing your new payment and potentially getting it reduced. If you are struggling to make your loan payment as a result of a sudden increase, talk to a student loan lawyer. A skilled attorney can help you navigate restructuring your payment plan to suit the specifics of your financial situation. Here are four of the most common reasons why your student loan payment might have increased.
You Have a “Graduated” 10-Year Repayment Plan
Signing up for a graduated repayment plan is common, as it helps graduates manage their payments by setting them low in the few years after graduation. Since many students have low incomes after they graduate and struggle to make payments, this plan emerged as a solution for individuals in this situation.
With this plan, your payments start off low and gradually increase with time. The idea is that as you progress your career, it’s likely you’ll start to make more money and can afford a higher payment. However, unlike an income-driven repayment plan, the payments on a graduated plan are not proportional to your income, meaning your payments will increase whether you’re earning a higher salary or not.
You’re Enrolled in an Income-Driven Repayment Plan and Your Salary Increased
Many people struggling to make payments on their federal loans due to a small salary enroll in income-driven repayment (IDR) plans. These plans set your monthly payments in accordance with your salary—usually 10–20% of your discretionary income. Additionally, they often change your terms to include a longer repayment period—usually between 20–25 years. As a result, your monthly payments become more manageable.
However, since these payments are proportional to your income, if your salary increases, so will your monthly payment. If you are enrolled in an IDR program, you’ll have to recertify your income every year, which includes providing information about your current income and if you have any dependents. If your income increased from the previous year, your monthly payments will increase.
You Have Private Student Loans with a Variable Interest Rate
Federal student loans always have a fixed interest rate, meaning the interest rate will stay the same for the entirety of the repayment period. Conversely, private student loans have different terms and policies, depending on the lender and loan. When you take out a private student loan, you can choose between plans that have fixed or variable interest rates. Usually, loans with variable interest rates have a lower initial interest rate, making them appealing to many.
However, the variable component of these loans means the interest rate can fluctuate in accordance with market trends. This means that if your variable interest rate increases, you will start to accrue more interest on your loan, increasing your monthly payment.
Your Loan Balance Increased in Deferment
In some cases, graduates will defer their loans to avoid going into default. This usually happens when people are unemployed, experiencing economic hardship, or going back to school for another degree. In deferment, your monthly payments pause, allowing you to work out your finances without the added stress of making your loan payments.
While this provides a great strategy for avoiding default, it can cause your loan balance to increase. If you have unsubsidized federal loans or private loans, interest will continue to accrue while your loan is in deferment. This growing interest will likely cause your total balance to increase, resulting in a higher overall balance. Once you cease deferment on your loans, this means you will probably have a higher monthly payment.
Work with a Skilled Arizona Student Loan Lawyer to Find the Best Option for You
Student loans are complicated, and it can be challenging to educate yourself on all the variables and factors that compose your loan agreement and terms. If you are struggling to make your monthly payments due to a new increase in your balance, you should seek professional guidance from a student loan attorney. A student loan lawyer can explain all the factors of your loan, why your monthly payment increased, and the best strategies for locking in a monthly payment that is best for you.
At McCarthy Law, our attorneys are dedicated to helping students navigate the complexities of the student loan system. Under our student loan debt settlement program, our licensed attorneys negotiate with lenders to ensure our clients pay only a fraction of their original loan balance. To schedule a consultation with one of our skilled student loan settlement attorneys, call (855) 976-5777 or fill out our online contact form.