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What Increases your total loan balance?

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Have you been wondering what increases your total student loan balance? When the interest on your federal student loan is not paid as it accrues during periods, your lender may capitalize the unpaid interest which causes your loan balance to increase.

Missed payments and late fees can explain the large increase in balances. In many cases, however, the borrower hasn’t done anything wrong, yet the balance still increased.

Here, we’ll look at ways a student loan balance can increase and review some strategies to prevent it from happening.

What increases your total loan balance?

This may be a result of late interest payments from the lender. Most lenders set a targeted period for borrowers to repay their loans. Interest capitalization occurs when unpaid interest is added to the principal amount of your student loan which effectively increases your total loan balance both the principal and the interest you’ll have to pay on it in the future. 

Also Read: 10 Best Small Business Loans For Bad Credit 2022

Will student loan interest rates go up in 2022?

The interest rates on federal student loans are set by Congress and can change each year. For the 2022-23 academic year, the interest rates on federal Direct Loans will be rising.

Do student loans increase over time?

Despite the rising cost of tuition, The average student loan debt grows at a rate of 7.8% per year graduates who have been out of school for years may owe more than new graduates due to rising interest rates, this increases your total loan balance.

While the total student loan debt balance continues to grow in 2022, its annual growth rate has consistently slowed over the last decade.

What happens if I don’t pay my student loans

Student loans are one of the most significant financial issues impacting many young Americans’ lives today. But what happens if you fail to pay your student loans?

Unfortunately, there can be many negative consequences of failing to make your student loan payments, including wage garnishment, a drop in your credit score, or a suspension of your professional license. 

Can You Get Rid Of Your Student Loans?

The only way one can get rid of student loans is by paying up unless one becomes eligible for student loan forgiveness or discharge this helps get rid of federal student loans without fully paying them off.

Types of forgiveness and discharge include:

  • Total and Permanent Disability Discharge: Available to borrowers who are permanently disabled.
  • Closed School Discharge: Available to borrowers whose school closes while they are enrolled or soon afterward.
  • Teacher Loan Forgiveness: Available for up to $17,500 of forgiveness to teachers who work in a low-income school for five years
  • Public Service Loan Forgiveness: Available to borrowers employed by a government or nonprofit organization who make at least 120 on-time payments while working for a qualifying employer.

What’s the difference between federal and private loans?

When comparing federal loans vs private loans, the key difference is that federal loans are provided by the government and private loans are provided by banks, credit unions, and other financial institutions. Each has its own student loan eligibility criteria, application process, and terms and conditions.

Who is eligible to take out federal student loans?

Anyone who is enrolled in a degree, certificate, or other approved program at an eligible school and is a U.S. citizen or eligible non-citizen, in most cases, borrowers must have a high school diploma or equivalency to be eligible.

Types of Federal Student Loans

All new federal student loans are made through the William D. Ford Federal Direct Loan Program. Students and parents who qualify can borrow directly from the Department of Education and their proceeds can be used at any qualifying school.

1. Direct Subsidized Loans:

Direct Subsidized Loans are a type of Stafford Loan and are designed for undergraduate students who have clear financial needs as determined by the FAFSA.

  • Eligible Students: Undergraduate Students with Financial Need
  • Interest Rate for ’21/’22 School Year: 3.73%
  • Origination Fee: 1.057%
  • Grace Period: 6 months

2. Direct Unsubsidized Loans

Direct Unsubsidized Loans differ from subsidized loans in that there is no requirement to show financial need to be eligible, but the government does not pay accrued interest during periods of deferment and while you are in school.

  • Eligible Students: Undergraduate, Graduate, and Professional Students
  • Interest Rate for ’21/’22 School Year: 3.73% (undergrad), 5.28% (graduate & professional degrees)
  • Origination Fee: 1.057%
  • Grace Period: 6 months

3. Parent PLUS Loans:

Parent PLUS Loans are a type of PLUS Loan that is specifically for parents of a dependent undergraduate-level student who is enrolled at least half-time at an eligible school. The borrower must be the biological or adoptive parent or stepparent in some cases. Guardians are not eligible.

  • Eligible Students: Parents of Dependent Undergraduate Students with No Adverse Credit History
  • Interest Rate for ’21/’22 School Year: 6.28%
  • Origination Fee: 4.228%
  • Grace Period: No Grace Period Typically but Parents May Request Deferment for 6 Months After Child Leaves School

4. Grad PLUS Loans

Graduate students who are attending school at least half-time may qualify for a Grad PLUS Loan. Graduate students must be enrolled in a program that leads to an advanced degree or a professional certificate to qualify.

  • Eligible Students: Graduate and Professional Students with No Adverse Credit History
  • Interest Rate for ’21/’22 School Year: 6.28%
  • Origination Fee: 4.228%
  • Grace Period: 6 Months After Leaving School

5. Consolidation Loans

Direct Consolidation Loans are for students who already have several federal student loans and want to combine them into one.

  • Eligible Students: Most Borrowers with Federal Student Loans
  • Interest Rate for ’21/’22 School Year: Weighted average of federal loans being consolidated rounded up to the nearest eighth of a percentage
  • Fee: None
  • Grace Period: 60 Days After the Loan is Disbursed (If any of the loans are in their grace period, you may request to delay repayment until it is up)

Do I need good credit to borrow a student loan?

The better your credit, the lower the rate you’ll likely get a student loan. Usually, you need good or excellent credit to qualify for student loan refinancing. You need at least a minimum credit score ranging from 650 to 680,

Federal Student Loan Borrowing Limits

There is always a limit to everything federal student loan is no exception. Federal student loan has imposed limits based on the year of attendance, the status of the student (dependent or independent), and other financial aid received for education. Here’s a quick overview:

  • First-Year Undergraduate Students – Dependent students can borrow $5,500 with no more than $3,500 in subsidized loans; independent students can borrow $9,500, with no more than $3,500 in subsidized loans.
  • ​Second-Year Undergraduate Students – Dependent students can borrow $6,500, with no more than $4,500 in subsidized loans; independent students can borrow $10,500, with no more than $4,500 in subsidized loans.
  • ​Third-Year and Beyond Undergraduate Students – Dependent students can borrow $7,500, with no more than $5,500 in subsidized loans; independent students can borrow $12,500, with no more than $5,500 in subsidized loans.
  • Graduate and Professional Students – $20,500 of unsubsidized only

Conclusion

Student loan interest increases as a result of late payments or failure to pay up. Most young American students have fall victim to late Loan payments since the rising cost of tuition fees. While the total student loan debt balance continues to grow in 2022, its annual growth rate has consistently slowed over the last decade. In other to get rid of a student loan you have to be eligible for student loan forgiveness.

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