Overwhelmed by your debt? Want to pay off your student loans? As prices for higher education continue to rise, millions resort to taking on student loan debt. If you don’t have a plan in mind, managing student loans can be difficult. High interest rates mean you’re stuck with massive student loan debt for decades. The longer you take to pay it off, the larger the debt grows.
Student loans can seriously hurt your credit too. They can prevent you from buying a car, renting an apartment, or traveling to your dream destination.
What Is the Average Repayment Time?
For the Standard repayment plan, it will take 10 years to pay off the entire amount debt. Everyone with federal loans is placed in this plan after the 6 month grace period ends. However, most people take twice as long to pay their loans off. According to statistics, it takes 20 years for the average graduate to pay off their debt. For those who pursue higher education, it can take 40 years or more to pay off their debt.
Before taking out a federal loan, consider four types of federal student loan repayment plans:
- Standard Repayment Plan: Fixed monthly amount for 10 years. It can extend to 30 years if you have direct consolidation loans.
- Graduated Repayment Plan: Instead of a fixed amount, payments start low but increase every two years. Repayment finishes in 10 years. Like Standard repayment, you can extend this to 30 years with a direct consolidation loan.
- Extended Repayment Plan: You can opt for a fixed or graduated extended plan for a longer repayment term. The repayment period for the Extended plan is 25 years.
- Income-Driven Repayment Plans: Monthly payments change yearly depending on your income and family size. These plans can last between 20 to 25 years. After the repayment period, any remaining balance can be forgiven tax-free.
Remember, these repayment plans are not available for private loans. However, the average repayment period for a private loan remains roughly the same.
Consider Income-Driven Repayment Plans
There are four types of Income-Driven Repayment Plans you could apply for, including:
- REPAYE Plan: Pay 10% of your discretionary income for 20 to 25 years.
- PAYE Plan: Pay 10% of your discretionary income for 20 years.
- IBR Plan: Pay 10% of your discretionary income for 20 years if you borrowed your loans on or after July 1, 2014. If you borrowed earlier than that date, you’ll pay 15% of your discretionary income.
- ICR Plan: Pay 20% of your discretionary income for 25 years.
Consider Refinancing
Refinancing is another option depending on how high your income is. If you have high income, Income-Driven Repayment plans may not benefit you. Refinancing is also ideal for those who have multiple federal and private loans as it allows you to merge all payments to a single entity. If you have a good credit score, you could qualify for a lower interest rate than what you’re already paying.
However, refinancing is not for everyone as there are some risk involved. Some refinancing plans are not worth it since some have higher interest rates. You also lose various federal benefits and protections.
Tips To Help Pay Off Student Loans Faster
Student loan payments are burdensome. However. there are ways to help speed up the process and pay your loans off faster than expected. Below are some of those ways to consider:
● Do multiple payments in a month: Allows you to lessen the interest accrued. Try to setup payments on a weekly or bi-weekly basis. This can have a significant impact as it reduces your principal as well.
● Stick to a budget: Set a budget that pays or overpays the monthly minimum. For example, set a budget of $350 for a $200 payment. This allows you to pay a little extra and acts as a buffer for when you need extra income.
● Pay more each month: Always pay more than the minimum each month and inform your servicer so that the extra payment pays off the principal balance and not interest. This will reduce interest overall!
Note, since the pandemic, the government has paused payments + interest for all federal student loans to ease the financial burden. Payments will likely resume at the end of September 2021.
Consider Your Options
Consider your repayment plan options and your process of repaying. Create a plan and make room to pay extra so you don’t have to pay more in the future. Most importantly, don’t let your student loans overwhelm your life, and don't default! Income-Driven Repayment plans or requested deferment are way better options than default.
