How long should your student loan term be?

Students rely on federal and private student loans to fill a gap not met by federal student aid. For many, it will take years — maybe even decades — to repay their student debt.

That's why it's important to understand student loan terms from the get-go, especially how long your student loan term should be. But what's the right student term length for you?

Here's what you need to know.

How long should your student loan term be?

For private loans, 10-year repayment schedules are the most common while some plans may offer terms of up to 25 years. Before you choose a student loan term, determine whether it makes more financial sense to opt for a shorter loan term or a longer loan term.

As you navigate the student loan application process, determine whether you want a short or long-term loan. There are pros and cons to each.

Choosing a short-term loan

• Pro: Choosing a shorter term helps loan borrowers pay off the debt sooner, so they can focus on building savings or paying down other forms of debt like from credit cards.
• Con: Shorter terms also mean higher payments, so that can be an issue if budgets are tight.
• Pro: Paying down debt improves a borrower’s credit score and makes them more attractive to future lenders, said Leslie Tayne, a Melville, N.Y. attorney specializing in debt relief. “Doing so more quickly can be beneficial if you’re looking to apply for things like car loans or mortgages,” she said.

Choosing a long term loan:

• Pro: A longer-term loan can help ensure a more balanced budget, where there is room for savings as well as loan payments.
• Con: Extended terms can be a "bit of a tradeoff," said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. “On the one hand, you are benefiting from a more affordable monthly payment, but you are locked into the commitment for a long time.”
• Pro: A longer-term can help loan borrowers avoid becoming delinquent or going into default. “This can be a good option if you’re worried about not having enough income at the start of your loan and don’t want to get stuck with a monthly payment you can’t afford,” Tayne said.

For federal loans, the first payment is due six months after graduation or when you leave school. Interest still accrues during your grace period, but you can opt to pay it during those months.

“Short term loans may have a higher interest rate, but long term loans can be costlier because of the total interest paid over time,” McClary said. “This is why it is important to look beyond the face value of the interest rate and do the math to see exactly how much you will pay over the full term.”

Loan borrowers who need a longer-term loan for lower monthly payments should look for competitive interest rates and make extra payments to shorten the term and amount of interest paid, Tayne said.

THESE COMPANIES OFFER STUDENT LOAN REPAYMENT BENEFITS

What student loan repayment programs are available?

Potential borrowers consider various student loan terms since the length and interest rates impact the amount of time it takes to repay them, hindering their ability to save, invest, or buy their first home. There are a variety of loan programs available, including:

• Standard Federal Repayment Plan: This plan gives loan borrowers 10 years to repay, but there are different plans that can be requested from the loan servicer, said McClary.
• Graduated Repayment: This plan is structured based on anticipated increases in income over time and can extend to 30 years for consolidated loans.
• Extended Repayment: This plan is an option for loan borrowers with over $30,000 of debt for a term of 25 years.
• Income-Driven Repayment Plans: There are four income-driven repayment plans that provide loan forgiveness after 10 to 25 years of qualifying payments.

WHAT IS A STUDENT LOAN INCOME-DRIVEN REPAYMENT PLAN?

How long does it take to repay a student loan?

People who borrow between $20,000 and $40,000 in federal loans have a 20-year repayment period, the Department of Education said in 2019.

The amount of interest a borrower pays during the course of their loans plays a large factor in how long it takes to repay them. Obtaining a lower interest rate for both short-term and longer-term loans is important since it can save you thousands of dollars.

The average amount of student loan debt is $32,731 and borrowers who have a student loan with a 6.5% interest rate and a 10-year repayment plan have a monthly payment amount of $372. Refinancing to a new loan with a 3.5% interest rate with the same term lowers payment amounts to $324 and reduces the total interest to $5,759.

Use an online student loan refinancing calculator to get a sense of your monthly payment amounts could be, depending on the length of the loan term.

“Generally, the better your credit is, the better rate you will be offered,” Tayne said.

The jobs taken after graduation impact the borrowers’ gross income and their ability to pay their loans. A higher salary means the ability to make extra payments or pay more than the minimum amount. Some employers also help pay a small portion of student loans each year as a benefit for their workers.

While many things can occur over the course of 10 or 25 years, making repayment of student loans a priority enables people to get out of debt sooner.

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