You may be surprised to see that your student loan balance is higher than the amount you originally borrowed, even if you’ve made on-time payments and haven’t taken out more loans. The increase typically isn’t a mistake but a matter of interest. Your loan may have accrued interest before you began repayment, unpaid interest may have been added to your balance, or your payment may not cover the full interest amount each month.
Understand how interest works on your student loans, how it can make your balance grow and what you can do to keep it under control.
[Read: Best Student Loan Refinance Lenders.]
Interest Can Build Before Repayment Starts
Depending on the type of student loan, interest may start accruing as soon as your funds are disbursed — even when you’re still in school. “If that interest isn’t paid while you’re in school, during a grace period, or while payments are paused, it builds up over time,” says Kaydee Ambas, a certified financial education instructor at Earnest, the student and personal loan company.
After leaving school, borrowers typically receive a grace period during which payments aren’t required, but interest may accrue. Likewise, interest can build during deferment or forbearance.
“It’s common during grace periods, deferment or even forbearance that borrowers’ payments may be paused, but that interest will continue to accrue,” says Leslie H. Tayne, finance and debt expert and founder of Tayne Law Group. “When the borrower resumes their normal payments, the total debt sum has grown and they now owe more money.”
Interest capitalization is another way your student loan balance can climb. With capitalized interest, unpaid interest is added to your loan’s principal balance. Then, future interest is calculated on the larger balance. With interest calculated on a larger balance, your total loan cost can rise over time.
You’re essentially paying interest on interest, says Ambas.
Income-Driven Repayment Can Grow Your Balance
Using an income-driven repayment plan can make student loan payments more affordable, but it can lead to negative amortization and balance growth when your monthly payment is lower than the amount of interest that accrues. Borrowers who make their required payments but still see their balance increase may be surprised.
“Income-driven plans are designed to keep payments affordable, which is important,” says William Gogolak, assistant teaching professor at Carnegie Mellon University’s Heinz College. “But if the payment is smaller than the interest accumulating each month, the loan balance can still grow in the background.”
It can still be helpful to use an income-driven repayment plan if you need lower payments — especially if you’re working toward loan forgiveness. But you should understand how unpaid interest works to avoid surprises and make decisions about your repayment strategy.
The new Repayment Assistance Plan, which replaces income-driven repayment for new borrowers, waives your monthly unpaid interest if you make on-time payments so your balance won’t grow.
[Read: Best Private Student Loans.]
Changes From Recent Payment Pauses and Relief Programs
Balances stopped growing for some borrowers during the pandemic, when relief programs suspended interest accrual and monthly payments for most federal student loan borrowers. Those programs ended on Sep. 1, 2023. Then the SAVE plan, which paused interest on loans in forbearance under the plan, was struck down in federal court. Interest accrual for SAVE plans resumed on Aug. 1, 2025.
Ambas says the payment and interest relief created a ‘wait and see’ mindset for many borrowers, and those who haven’t checked their balances in awhile may now see unexpected growth.
Although pauses such as deferment, forbearance or administrative holds can provide short-term relief, interest may still accrue depending on the type of loan and program terms. Unpaid interest is added to the loan balance, increasing the total amount owed.
[Read: Best Parent Student Loans: Parent PLUS and Private.]
How To Keep Your Student Loan Balance From Growing
You may not be able to avoid interest entirely, but there are steps you can take to keep your loan balance from increasing. Making strategic payments early and understanding how interest applies can reduce your total loan cost over time.
“The most important step is understanding the tradeoff between a lower monthly payment and the total cost of the loan,” says Ambas. “A smaller payment can make your budget more manageable today — but if it stretches your repayment over a longer term, you may pay more in interest over time.”
A few strategies can help you stay ahead of student loan interest:
— Pay interest before repayment while you’re in school, during the grace period or when required payments are paused.
— Pay more than the minimum if your monthly payment doesn’t cover all of the interest.
— Use autopay if your servicer offers an interest rate discount for automatic payments.
— Think twice before refinancing federal loans into private ones. You’ll lose access to federal programs, including income-driven repayment and forgiveness.
“Even small payments toward interest early on can prevent the balance from snowballing later,” says Gogolak. “The earlier borrowers recognize how compounding works, the more control they have over the long-term cost of the loan.”
More from U.S. News
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Why Your Student Loan Balance Is Higher Than What You Borrowed originally appeared on usnews.com
