This post may contain affiliate links. Check out my Disclosure Policy for more information.
Student loans are a rare kind of debt. Most people take them out because they figure they’re “good debt,” and they can get a higher income with it post grad.
This usually is true and for some careers, you absolutely need a degree. But, you should be very aware of how much debt you are taking on while in school.
Of course, this is dependent on the degree you are going after. If you’re studying to be a doctor, chances are you will have a high income post grad. If you’re like me, studying to be a teacher, chances are your income is going to be lower.
Don’t make the same mistake I did and take out $201k to become a teacher. It will be nearly impossible to survive post grad, trust me.
And you just might find yourself in a situation of having your student loans get larger post grad, even if you’re making your payments.
How do student loans increase, if I’m making my payments?
I know it sounds crazy, but it’s very true. It happens to so many people. They make their minimum payments, but they realize their total is increasing, not decreasing.
This is the sad reality of student loans. Student loans are the craziest debt, in my opinion, especially federal loans, when you don’t understand them. They can’t be wiped away with bankruptcy and they can increase, even when making minimum payments. Also, they have a ton of different options for repayment and forgiveness.
But, that’s exactly why they are a problem and why they increase. People see they have a minimum payment of $0 and think it’s awesome.
The reality is that your loans are still accruing interest every single day. Once a year the interest capitalizes and now it’s part of your principal balance. Now, that total will be accruing interest and suddenly your loan has ballooned in size.
This happens to so many people and the fact that it even is possible is so terrible, in my opinion.
How can I prevent them from getting bigger?
The very first thing you need to do is become aware of your student loans and where your payment goes every month.
If your loans are private, you’re most likely fine. Usually, private loans don’t have the crazy repayment plans and require you pay off the interest and some principal in your minimum payment each month. To be sure, check your statement and see where your payments are going.
If your loans are federal, you need to very carefully check your payments. If you are on any kind of payment plan, you need to make sure your interest is being paid off every single month. If you see that your interest isn’t being paid off each month, this is when you get your loans increasing.
I’m not saying don’t use a payment plan option on your federal loans, I’m personally on one to lower my payment while I focus on other student loans. But, I’m sure to pay off at least my interest every month no matter what.
And this is how I prevent my student loans from getting bigger.
If you have student loans and are making minimum payments, I absolutely think you should check out how your payment is being made. Make sure you’re paying off the interest every month.
If you’re not paying off the interest every month and you see that it is growing. Make a change right now. Increase your payments to at least cover the interest. Make sure this happens by putting it in your budget and treating it like the minimum payment.
You might think it doesn’t matter, but once the interest capitalizes into your principal and it’s accruing even more interest, it will matter. It will make it much more difficult to pay off in the future.
Basically, just pay your interest in full every month.
That’s how I go about my student loans. No matter what, I pay off my interest in full. And I know that these loans qualify for forgiveness in 10 years of on time payments. But, that’s a super long time to be paying a minimum payment on these things.
Personally, I would much prefer to pay them off faster and just get to do whatever I want with my hard earned money.
Also, I assume that these programs won’t last. I don’t want to count on something that may not work out for me. Plus, I took out the loans and I absolutely should have to pay them back, so that’s what I’m doing. Do you have student loans? Have they increased in size while you pay the minimums?