In 2025, millions of borrowers are logging into their loan accounts only to find a frustrating reality— their student loan balances have grown instead of shrinking. But why is this happening? From interest accrual to changing policies, several factors are contributing to this increase. Here’s a breakdown of what’s driving the growth and how you can stay ahead of it.
1. Interest Accrual and Capitalization: The Hidden Debt Multiplier
Interest is one of the main reasons student loans grow over time. For many loans, interest accumulates daily, and if your payments don’t cover that interest, it’s added to the loan’s principal balance. This is called “capitalization,” and it means you’ll be paying interest on a higher loan amount going forward. Borrowers in income-driven repayment plans are particularly vulnerable since their monthly payments are often too low to cover the interest.
2. The End of Pandemic Relief Programs
During the COVID-19 pandemic, the government provided temporary relief measures, including payment pauses and 0% interest. However, those benefits have ended. As payments resume, borrowers face not only their regular monthly payments but also the interest that may have accrued during the pause. This has led to balance increases for many who were relying on the extended relief.
3. New Legislative Proposals Could Mean Higher Payments
New government proposals aimed at reshaping income-driven repayment plans could make student debt more expensive for some. For example, proposed changes under the College Cost Reduction Act (CCRA) might raise monthly payments for borrowers who are already struggling to keep up, causing loan balances to grow more rapidly. While these changes are still under discussion, they could have a major impact if passed.
4. Borrowing More to Keep Up with Rising Tuition
It’s no secret that college tuition continues to climb, forcing many students to take on larger loans. Unfortunately, the more you borrow, the more interest you’ll pay, and the faster your balance can grow. This trend is making it harder for recent graduates to get out of debt.
5. Inflation and the Cost of Living
Inflation affects more than just groceries and gas—it also impacts your ability to repay loans. As living expenses rise, borrowers may find it harder to make large loan payments, leading to increased interest accumulation. Stagnant wages are another factor, as many borrowers aren’t earning enough to keep up with both daily expenses and student loan payments.
How to Manage Your Growing Loan Balance
Although these factors can be overwhelming, there are steps you can take to minimize the impact. Consider enrolling in an income-driven repayment plan if you haven’t already, but be aware of the interest implications. If possible, make extra payments toward the principal to reduce interest costs in the long run. Keeping track of policy changes can also help you stay informed and adjust your strategy as needed.
If your loan balance is growing, you’re not alone, but understanding why it’s happening is the first step toward taking control of your debt.
