If you’re looking to continue your education at a college or university, chances are you are going to need to take out a federal student loan, private student loan, or even both to cover your expenses. While loans can be an excellent way to get some extra cash when you need it, you’re going to want to consider the repayment schedule you’ll be responsible for when you graduate with a bachelor’s degree.
When you first receive a loan, you may not give much thought to the monthly payments ahead of you. You also might not consider how these costs will accumulate over time. The interest rate on most student loans means you’re going to end up paying more for the loan than what you borrowed, and these student loan payments can really add up.
Even so, student debt is a necessity for many college graduates. Let’s take a closer look at the amount of time you should expect the loan repayment period to last.
Anticipating Student Loan Debt and Loan Repayment
Before signing a student loan agreement, you need to consider the repayment schedule, including things like monthly payments, interest rates, and grace periods. Borrowing too much money can leave you paying hundreds or even thousands of dollars every month trying to bring your debt down. What may feel like free cash now could end up hurting you when the time comes to start making payments.
Your college major and career path are also incredibly important to consider when thinking about repaying your loans. While some high-paying careers require more education, and therefore more loans, a higher starting salary may mean you have a better chance of paying those loans off quickly. If you’re anticipating a career with a lower starting salary, such as the field of public service, you don’t want to riddle yourself with debt that will be a struggle to pay off for decades to come.
The amount of loans that you take out when going to school needs to be partially reflective of what you plan to make when you graduate. While you can never anticipate the exact job you will get after graduation, you need to be realistic about your personal finances and the minimum payment you’ll likely be able to make each month.
In 2016, college graduates had an average of over $37,000 in student debt. For some, that number was much higher. If you’ve never taken out a loan before, understanding the nuances of the loan repayment process may be difficult. You probably have a lot of questions, but one of the biggest questions you may be asking is, “How long does it take to pay off student loans?” Let’s take a closer look.
Student Loan Repayment Period: How Long Does It Last?
The amount of time it takes to pay back your loans depends on many factors. These could include your credit score, loan interest rates, and whether or not you refinance your loan at any point. One of the biggest factors at play is usually the type of repayment plan you select. Be sure you understand the different repayment plans and how they will impact your repayment schedule.
There are several different types of repayment plans, and the one that you choose will influence how much money you spend each month. It will also affect how long it takes you to pay off your student debt. Below are the four most common repayment options.
1. Standard Repayment Plan
With a Standard Repayment Plan, after a six-month grace period, you make the same loan payment every month through the entire duration of the repayment schedule. Depending on the overall sum of the loan, this could be a relatively high amount. For some people, the amount of money owed on a Standard Repayment Plan might be too much for them right out of college, making this option less attractive or even unfeasible.
A Standard Repayment Plan allows you to spread the cost of the loan over up to 10 years. Each month for 10 years, you will owe a set amount of money to your student loan. This repayment plan can take time, but it ultimately allows you to pay less money overall because of accumulating interest.
2. Graduated Repayment Plan
A Graduated Repayment Plan has repayment terms that change over the course of the loan. These plans allow you to start your payments low and then increase them every few years until the loan is completely paid off. Like a Standard Repayment Plan, you can have up to 10 years to spread out your loan, with the increases in repayment amounts increasing about every two years.
A Graduated Repayment Plan is ideal for someone who may not have a high enough starting salary to cover a high monthly payment, but who anticipates higher earning potential later on. Because you are making smaller payments at the start of your loan, you are allowing more interest to accumulate on the loan. This means a Graduated Repayment Plan will have you paying more overall than the Standard Repayment Plan.
3. Extended Repayment Plan
An Extended Repayment Plan works the same as a Standard Repayment Plan or Graduated Repayment Plan, but the repayment period is extended from 10 years to 25 years.
This option allows you to reduce your monthly payment even more, but also means that interest will have more time to accumulate. Your total student debt increases as the interest adds up over time.
4. Pay as You Earn Repayment Plan
The loan terms for a Pay as You Earn Repayment Plan include varying monthly payments that depend on how much you earn. If you have a lower starting salary, you’ll pay less to begin with. As your salary increases, so do your monthly payments. Depending on the amount of the loan or how much money you make, this could mean you’re paying more than you would for a Standard Repayment Plan.
With a Pay as You Earn Repayment Plan, you will have between 20 and 25 years to repay your loan. At the end of that time, if your loan has not been paid off, your loan will be forgiven. Loan forgiveness is an important benefit of the Pay as You Earn Repayment Plan.
The loan terms and repayment schedule that you decide upon will greatly influence how long it takes you to pay off your student loan. While you don’t want to overextend yourself with high monthly payments, you also want to select the repayment plan that allows you to get out of debt as quickly as financially possible, as you’ll pay less interest over time that way.
Strategically Pay Off Your Student Loan Debt
There’s no better feeling than making your last payment on your student loan. Plan now to get there.
When thinking about how you’re going to pay off your student loan debt, you need to be realistic about what is right for you. While some college graduates may be able to pay off their debt in just a couple years, others could be paying for decades, even refinancing loans several times in order to reduce monthly payments. Luckily, there are some things you can do to ensure you get out of debt as quickly as possible.
First and foremost, don’t borrow money that you don’t need to borrow. While it may seem like a very good idea to have extra cash while in college, if you borrow it, you’re going to pay it back with interest over time. Taking a job while you pursue your degree is one way to put a little extra cash in your pocket.
Use a student loan calculator to help anticipate monthly payments and the repayment schedule. Then, borrow as little money as possible to keep your loan payments low.
If you do need to take on student loan debt, try making biweekly payments instead of just monthly. This strategy can help you to cut interest off your loan by essentially making extra payments over time. When you pay biweekly, you end up making 26 payments per year instead of the 24 you’d make if you contributed twice a month.
Another easy strategy is to add small bits onto your payment each month. While you may not be able to spare an extra hundred, adding whatever extra money you have available that month, even just $20, can help you pay your debt off faster.
Don’t Ignore How Long It Takes to Pay Off Student Loans
Your student loan payments shouldn’t be debilitating or keep you from living your life. Start by choosing your college purposefully. The perfect college for you should be one that fits your budget and provides the necessary financial aid package. College Rank’s unique ranking methodology will help you to weigh not just quality of education and student support services, but return on investment too. You may even want to check out College Rank’s list of top tuition free colleges to get started.
When you choose a college that fits your financial needs, you can create a smart repayment plan that works for you, your income, and what you can realistically afford to repay. Put the additional money towards your student loan whenever you can.
So, how long does it take to pay off student loans and get out of debt? It all depends on the choices you make today.