American Financial Benefits Center on Unexpected Ways Student Loans Can Cost More Money

It’s common knowledge that when you borrow money, you’re expected to pay it back. That’s the same with student loans. However, because of the way student loans are disbursed and how interest is handled, students may be surprised by an unexpectedly high balance at several points during their repayment. American Financial Benefits Center (AFBC), a document preparation company specializing in applying for federal student loan repayment programs, suggests that borrowers monitor their loans and know what can cause increases in balance so the unexpected can be expected.

“Student loans are complicated enough without the unexpected fees and increases in balance that can happen throughout the life of the loan,” said Sara Molina, manager at AFBC. “Without a plan to tackle student loans, it’s easy to pay way more than originally necessary by the time the loan term is complete.”

Student loans are disbursed at the beginning of each school term. Funds go to the school, which takes out tuition and other fees, and the remaining money is sent to the student. However, before all that, the lender takes out an origination fee. According to a recent report, more than half of the respondents were not aware or were not sure if they had been charged an origination fee, though all federal loans are charged one.

Many lawmakers believe origination fees are a relic from a previous student loan system and that they should be removed. While origination fees do not add to the balance, students are expected to pay back the entire loan amount, including interest on that fee that was collected before they received any of the money.

Once repayment begins, many students may be surprised by how much they owe. Even for students who attempted to keep track of their loans during school, certain factors can inflate that number. For example, unsubsidized loans accrue interest during school that is added to the principal when repayment begins.

But that’s not the only time that interest is capitalized. Unlike other debts, interest does not get added to the balance regularly. Instead, interest capitalization is triggered when the loans are consolidated, or when a borrower enters into a different repayment plan or enters repayment after the grace period ends or periods of forbearance or unsubsidized deferment. Once interest is capitalized, all future interest is calculated on the new total.

Unexpected interest capitalization can be frustrating to borrowers who discover a balance much higher than anticipated. AFBC recommends that borrowers keep a close eye on their student loans and understand what triggers interest capitalization so they can make smart decisions.

“We specialize in helping our clients apply for and recertify for income-driven repayment plans,” said Molina. “If borrowers miss their recertification deadlines, they risk interest capitalization from their loans switching back to the standard plan. We assist our clients in that process so that they are less likely to miss a deadline and get surprised later.”

About American Financial Benefits Center

American Financial Benefits Center is a document preparation company that helps clients apply for federal student loan repayment plans that fit their personal financial and student loan situation. They adhere to strict customer service guidelines and strive for the highest levels of honesty and integrity.

AFBC is a member of the Association for Student Loan Relief (AFSLR) and each representative on the phone has received the Certified Student Loan Professional certification through the International Association of Professional Debt Arbitrators (IAPDA).

Contact

To learn more about American Financial Benefits Center, please contact:

American Financial Benefits Center
1900 Powell Street #600
​Emeryville, CA 94608
1-800-488-1490
​info@afbcenter.com