Why Does Interest Keep Growing On Your Student Loans

Are you wondering why the interest on your student loans seems to keep growing even though you're making payments? It can be confusing, but don't worry; I'm here to help you understand how interest is calculated on student loans and what happens when it capitalizes. This is especially important if you're planning to buy a home soon.
By the way, I've also explained this in the video above, so feel free to check that out too! ⬆️
⚡️Let's break it down:
Income-Driven Repayment Plans (IDR): When you sign up for an IDR plan, your monthly payments are adjusted to be more affordable based on your income. However, there's a catch. Sometimes, the new monthly payment might be so low that it only covers some of the interest that's adding up each month.
⚡️Different IDR Plans: PAYE, REPAYE, and IBR are other IDR plans. They all have rules for handling interest building up, but they all provide some form of interest subsidy. This means the government might help you pay some of the claims.
⚡️Interest Capitalization: This is a fancy term for what happens when the interest that has added up gets added to your total loan balance. This can happen if you fail to re-certify for your IDR plan. When this happens, your loan balance increases and future interest is calculated on this new, higher balance. That's why it's essential to re-certify your IDR plan on time!
Understanding how interest works on your student loans can help you make better decisions and pay off your loans faster. If you have any questions, feel free to let me know. I'm here to help you make sense of it all!


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