Learning about available repayment options for student loans makes the process easier for borrowers.
Educating yourself on how to pay off student loans can save you from stress and financial hardship, but missing payments can bring serious consequences. Making your monthly payments on time is easier if you set up automatic payments that match your paycheck schedule. Paying off high-interest loans first or consolidating your loans can also lessen the overall strain.
It typically takes around 20 years to pay off student loans. Fortunately, federal student loans allow a grace period of 180 days after earning your degree before repayment begins. Private lenders typically do not offer this grace period and instead require you to begin repayment immediately after graduating.
While you can use the grace period, deferments, and forbearance to delay paying off your loan, it's often best to begin paying off your loan as soon as possible. Read on for our primer on how to pay off student loans fast, along with various repayment plans and other resources.
The type of payment plan you choose can have a significant impact on the total amount you pay. While it's tempting to choose payment plans based solely on the monthly payment amount, other factors deserve equal consideration.
Consider the big picture, including the interest rate, monthly payment amount, and total length of your loans. While the payment plan you choose will not affect your loan's interest rate, a longer repayment period means that you will ultimately pay more in interest. This loan repayment calculator can help you get a clear picture for how this works.
The following payment plan information relates to federal loans. Plans from private lenders are more variable, so you will have reach out to them individually to understand their specific terms.
Standard Repayment Plan
A standard repayment plan splits your loan into 120 equal monthly payments over 10 years. This plan offers the advantage of lower overall interest, repaid over a short repayment period.
Graduated Repayment Plan
With a graduated repayment plan, recipients pay off their loans each month in small increments that increase gradually every two years for the life of the plan, on the assumption that the graduate will make higher salaries over time. It usually takes around 10-12 years to pay off this type of plan.
Extended Repayment Plan
An extended repayment plan features very low monthly payments that last for up to 25 years. While this plan puts less pressure on the borrower each month, it ultimately results in paying far more over time.
Revised Pay-as-You-Earn Repayment Plan
A REPAYE plan calculates your monthly payments at 10% of your discretionary income, with payment amounts recalculated every year to adjust to your projected income. This plan forgives all outstanding debt after 20 years for undergraduates and after 25 years for graduate students.
Income-Based Repayment Plan
With an IBR plan, you pay 10-15% of your discretionary income monthly, with the monthly payment updated every year based on current income and family size. This plan takes 20-25 years to pay off, at which point all debt becomes forgiven.
Income-Contingent Repayment Plan
ICR plans calculate your monthly payment based on either 20% of your discretionary income or the amount you would pay on a fixed repayment plan over twelve years. The amount is recalculated every year. The plan forgives all outstanding debt after 25 years.
Income-Sensitive Repayment Plan
An income-sensitive repayment plan calculates payments based on a percentage of your monthly income and takes 10 years to pay off. Payments change annually to adjust to your current income. The plan tailors to low-income borrowers with Federal Family Education Loan Program loans.
Loan consolidation allows you to decrease your financial strain by combining multiple loan payments each month into a single loan. Consolidating your loans can bring down your interest rate and reduce the amount you owe overall by averaging the interest rates of all your outstanding loans into a single, fixed interest rate.
The federal government allows students to consolidate most types of federal loans, except loans for private education. You also cannot consolidate Direct PLUS Loans taken out by parents to pay for a dependent child's education with loans later taken out by that child. Loan consolidation programs have varying guidelines.
To consolidate your loans, you must complete and submit a federal direct consolidation loan application and promissory note and then agree to repay the new Direct Consolidation Loan at the Office of Federal Student Aid's online portal.
How to Navigate Financial Hardship
The obligation to make monthly payments on your loan debt can strain your financial well-being, especially if you enter a period of financial hardship. If you become injured or suddenly lose your job, you may find it hard to fulfill your obligation to your lender while staying financially afloat. You can avoid defaulting on your loan by taking advantage of financial hardship options, such as forbearance and deferment.
Accessing financial hardship options delays immediate financial stress, but there are drawbacks. While forbearance and deferment can postpone or pause loan payments, they do not always pause the interest accruement. This means you may end up spending more on your loan in interest because you delayed payment.
These rules for forbearance and deferment only apply to federal student loans. Private lenders sometimes offer assistance to students suffering financial hardship, but do not allow them to defer or request forbearance for loan debt.
- Forbearance: Forbearance allows you to greatly reduce or pause payments on your federal loan for a short period (typically less than a year) and then pay back missed or reduced payments in one lump sum later. Interest continues to accrue during this period.
- Deferment: Student loan deferment allows you to lower or postpone payments for three years or more. Interest typically does not accrue during the period of deferment. Candidates must explain the life event that justifies deferment to qualify.
Loan Forgiveness or Cancellation
Students can have their loans forgiven or canceled for various reasons. For example, professionals working in low-income professions that benefit underserved communities — such as teachers or mental health counselors — or those who recently withdrew from now-defunct institutions can apply for loan forgiveness.
The following list covers the most common forms of student loan forgiveness or cancellation. Visit this link for additional types of loan forgiveness.
Public Service Loan Forgiveness
Full-time employees of U.S. federal, local, state, or tribal government or nonprofit organizations working toward the public good can apply for public service loan forgiveness programs. A borrower's remaining debt on their federal loans will be forgiven after they make 120 on-time payments.
Teacher Loan Forgiveness
Teachers who work full time in high-need schools or educational services agencies for at least five complete, consecutive years can receive forgiveness for much of their federal loan debts. Teachers need bachelor's degrees and full state licensure for eligibility.
Closed School Discharge
Students who attended schools that recently closed, including those who withdrew less than 120 days before the school's closure, are eligible for this program. In some circumstances, the federal government may extend the 120 day eligibility period.
Total and Permanent Disability Discharge
Those who become permanently disabled can have their remaining loan debt discharged for many types of federal loans. Candidates must present documentation from the Department of Veteran Affairs, the Social Security Administration, or a physician to qualify.
Death or Bankruptcy
Death relieves your family from paying any of your remaining federal student loan debt. Bankruptcy can also relieve your federal loan debt obligations if you can demonstrate that you or your dependents would suffer hardship by continuing to pay off the loan, though this process is not automatic; you must apply for it separately from your bankruptcy filing.
Frequently Asked Questions
Can I Negotiate My Student Loan Debt?
Settlement for defaulted federal student loan debt rarely happens. The federal government can garnish your tax returns, wages, or social security benefits to get back the money you owe. However, if you can prove undue hardship after declaring bankruptcy, the government may choose to settle your debt.
How Much Student Loan Debt Is Too Much?
Generally, your monthly payments should not exceed 10% of your post-graduation monthly income. The typical undergraduate exits college with $30,000 in loan debt. However, each person has different needs.
What Happens if You Never Pay Your Student Loans?
If you ignore your student loans, your debt becomes delinquent and eventually enters default. Your credit score will suffer and interest will continue to accrue. Eventually, the government will try to get the money from you in other ways, by which time the debt will have grown significantly.
Are Student Loans Forgiven After 20 Years?
Depending on the repayment plan, you may need to wait up to 20-25 years before applying for student loan forgiveness. Most income-driven repayment plans make you wait 20 years before forgiving any remaining debt. The process is not automatic; you must apply for forgiveness.