What is student loan amortization?

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Amortization is the process of paying off a loan, such as a student loan, in equal installments. Although your payments on an amortized loan will stay the same over the life of the loan, you will typically pay more interest than principal in the first few years of your loan.

Because of this, you may not see much change in your overall student loan balance to begin with, especially if your payments aren’t enough to cover the monthly interest charges. The good news is that some repayment strategies may help you tackle your student loans more easily while managing the impact of repayment.

Here’s what you need to know about student loan repayment:

What is amortization?

Amortization is the process used to pay off an installment loan. With an installment loan, you will make equal payments over a period of time.

The amount of your payments will go toward principal and interest will change over the life of the loan according to the amortization schedule.

Keep in mind: Unlike installment loans, revolving lines of credit, like credit cards or lines of credit, are not paid on an amortization schedule. Instead, you can repeatedly withdraw and pay off your line of credit.

Are your student loans paid off?

Yes, student loans are a type of installment loan, which means they are amortized. Due to amortization, you will probably start paying more interest in the early stages of payment.

However, if your payments aren’t enough to fully cover your monthly interest, you could end up with skyrocketing interest costs. This is why many student loan borrowers have found themselves with student loan balances that far exceed what they originally borrowed.

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If you’re wondering how competitive your loan is, the following loan qualification tool can help. Simply enter your APR, credit score, monthly payment, and remaining balance (estimates are fine) to see how your loan stacks up.

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Learn more: Student Loan Interest Calculator: Estimated Payments

What is negative amortization?

Unlike mortgages and other amortized loans, federal student loan repayment options, such as income-driven repayment (IDR) plans, may lower your monthly payments.

However, while signing up for one of these plans can make your payments more affordable, it could also lead to negative amortization if your payments don’t fully cover interest charges each month. Negative amortization is when your loan amount actually increases because unpaid interest is added to your principal balance.

Tip: If your payments are too low to cover your interest charges, making extra payments on your student loans could help you avoid negative amortization. For example, if your monthly payments are $350 but your monthly interest is $400, paying the $400 will prevent $50 of unpaid interest from being added to your balance.

Just be sure to only pay what you can reasonably afford based on your budget. Also check with your loan servicer before making additional payments to make sure the additional funds are going toward your interest.

Check: Private Student Loan Payment Options

Other forms of payment and amortization

The higher your principal balance, the higher the percentage of your monthly payments that will go to interest. And if you can lower your monthly payments, you’re more likely to end up with a negatively amortizing student loan and a higher principal balance.

If you’re having trouble with negative amortization on your student loans, a couple of options to consider include:

  • Student Loan Refinancing: Through refinancing, your old loans will be paid off with a new private student loan, leaving you with just one loan and payment to manage. Depending on your credit, student loan refinancing could earn you a lower interest rate, which would reduce the amount you owe in interest each month. This could also help you pay off your loans faster.
  • Federal Loan Forgiveness: Several loan forgiveness programs are available to borrowers of federal student loans. For example, if you work for a government or nonprofit organization and make qualifying payments for 10 years, you may qualify for Public Service Loan Forgiveness. Or if you sign up for an IDR plan, any remaining balance may be forgiven after 20 or 25 years, depending on the plan.

Keep in mind: While you can refinance federal and private loans, refinancing federal student loans will cost you access to federal benefits and protections, such as IDR plans and student loan forgiveness programs.

If you decide to refinance your student loans, be sure to check out as many lenders as possible to find the right loan for your needs. Credible makes it easy: You can compare your pre-qualified rates from multiple lenders in two minutes.

Find out if refinancing is right for you
  • Compare actual rates, not ballpark estimates – Unlock rates from multiple lenders in about 2 minutes
  • Will not affect credit score – Checking rates at Credible will not affect your credit score
  • data privacy – We do not sell your information, so you will not receive calls or emails from multiple lenders

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About the Author

Emily Guy Birken

Emily Guy Birken is a credible authority on student loans and personal finance. Her work has been featured online by Forbes, Kiplinger’s, Huffington Post, MSN Money, and The Washington Post.

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