How long does it take to pay off a student loan? The average time to pay off a student loan depends on different factors as a student. These factors include your total loan amount, monthly payment, and annual percentage rate. The repayment plan you choose may also play a huge role in how long you repay your loan. While federal student loan repayment plans can last from 10 to 30 years, private student loan repayment options vary widely.
Average Time to Pay off a Student Loan
Federal student loans usually have repayment terms between 10 and 30 years. By default, they are set to a standard 10-year plan, unless you decide to go for a different one. This 10-year repayment plan usually means higher monthly payments, prompting many borrowers to pick very long repayment terms. According to a study by the One Wisconsin Institute, the average borrower takes 21.1 years to pay off their student loans.
Factors that affect how long it takes to pay off a student loan
There are lots of factors that play a huge role in the time it takes to pay off your student loan. And just like I have mentioned above, they include your loan amount, repayment plan, interest rates, and income. Let’s dive into the details of the role these factors play in how long it takes to pay off your student loan.
Loan Amounts
The total amount of your student loan debt may have a huge impact on the repayment period. Larger loan amounts with higher monthly payments can strain your budget, leaving less money for other expenses. If your budget is tight, making extra payments to pay off the loan faster may be quite difficult.
Repayment Plan
How long it takes to pay off student loans largely depends on the repayment plan you go for. Just like I mentioned earlier, federal student loans offer plans ranging from 10 to 30 years, while private loans have varying terms based on the lender the student went with.
Interest Rates
Interest rates affect both the total cost of your loan and your monthly payments. A higher interest rate means it can take longer to pay off your loan, depending on your income and budget. Over the past few years, student loan interest rates have been increasing.
Refinancing Student Loans
Refinancing is getting a new private student loan to replace the current one. This gives you new loan terms, a new interest rate, and often a new lending company.
Refinancing can change how long it takes to pay off your student loans. You can choose a shorter term with very high monthly payments or extend the term to reduce your monthly payments. Keep in mind that if you extend the term, it means you will pay more in interest throughout the loan.
Changing your payment schedule
Adjusting your payment schedule can speed up paying off your loans. For example, if you pay every three weeks or biweekly, you’ll reduce the time it takes to pay the loans. Making 26 half-payments a year equals 13 full payments or one extra payment. Doing this for three years can help reduce your repayment time by three months.
If you often miss payments or don’t pay the full amount, the term of your loan could get longer. Missing payments might also result in late fees and damage your credit score.
Income
If you earn a high income, you probably have extra money in your budget to make additional loan payments. Paying more than the minimum helps reduce the total interest and the time it takes to pay off your loan.
Federal Student Loan Repayment Options
Standard 10-Year Repayment Plan
The standard 10-year plan has a set interest rate and fixed monthly payments. It’s the default plan unless you go for another option.
Graduated Repayment Plan
It usually spans about 10 years and up to 30 years for consolidation loans. It starts with lower monthly payments that go up every two years.
Extended Repayment Plan
This plan usually lasts for about 25 years. And offers either fixed or graduated payments that rise over time. To qualify for this repayment plan, you need more than $30,000 in outstanding direct or FFEL loans.
Income-Driven Repayment Plans
Income-driven repayment (IDR) plans for federal student loans have you pay off a percentage of your discretionary income for a fixed period. After this time, any remaining loan balance will be forgiven. IDR plans to adjust payments based on your monthly income and your dependents, making them more affordable options.
Private student loan repayment options
Private student loan lenders decide the interest rates and repayment plans on their own. So, the length of time you have to repay the loan depends on what they offer you and the loan you choose.
Generally, private student loans offer repayment terms of up to 15 years or even longer. However, since many borrowers aim to repay their loans quickly, you can also come across private student loans with shorter terms, sometimes for as short as 5 years.
Bottom Line
In conclusion, the time it takes to pay off your student loan debt depends on how much you owe, your interest rate, and your repayment plan. This means you have the power to decide how fast you become debt-free, but your income and budget will set limits.
Some borrowers are best served by quickly paying their student loans, while others benefit more from a repayment plan with lower monthly payments, such as IDR. Explore the options you have to find the best way to repay your student loans on a schedule that matches your needs.