How Long Does it Typically Take to Pay Off College Loans?

How Long Does it Typically Take to Pay Off College Loans?Most people go to college to increase their earning potential, and because many of these same people have taken out loans to pay for their tuition, they have to find a way to pay them off when they graduate. Most financial advisors say to borrow no more than you expect to earn your first year out of college. This rule, however, is getting harder to live by as education becomes more expensive and graduates have to adapt to a changing job market.

Student Borrower Options

Federal student loans have a 10-year repayment window that begins six months after a student graduates or drops below half-time enrollment. It’s comforting not to have to pay off debt for such a long time, but the longer a debt is held, the more interest accumulates on it, making the overall repayment amount significantly higher. For anyone having trouble making loan payments, there are repayment programs designed to lighten the burden of living with debt.

Loan providers are legally required to grant forbearance to borrowers whose monthly payments are greater than 20 percent of their income. This option is helpful when it becomes necessary, and loan providers will usually grant temporary forbearance to borrowers who simply need to delay repayment for a month or two. Every borrower is eligible for up to 36 months of forbearance, and these months can be used at any time; they don’t necessarily have to be used consecutively.

A better option is deferment, which is a similar loan status that allows borrowers to delay repayment until they have enough income to make payments. All students are automatically put into a period of deferment while enrolled in college, and federally subsidized loans don’t accumulate interest during this time. Other reasons deferment is granted include unemployment, economic hardship and military duty, although, to be approved for deferment, borrowers must provide proof of their financial situation.

Income-Based Repayment

For most borrowers, an income-based repayment plan is the best choice because it provides a flexible repayment schedule and extends the amount of time borrowers have to pay off their loans. With Income-Based Repayment, Pay As You Earn and Income Contingent repayment plans, borrowers have up to 36 months to begin making payments. After three years, they must pay a certain percentage of their monthly income, which is usually a very affordable amount and allows the borrower to pay off college loans over a period of 25 years. While these programs make repayment relatively stress-free, repaying a debt over 25 years can increase it by about 20 percent, so it’s much better to make payments as large as possible before interest spirals out of control.

A lot of people delay starting families to give themselves time to pay off student debt, and this plan is a lot more realistic in the 21st century due to the significantly higher life expectancy in the developed world. There are rumors in the finance industry that a student debt bubble is developing, similar to the subprime mortgage bubble that burst in 2007, causing the Great Recession.

College tuition and student debt are increasing, so borrowers should expect to have larger debts than their parents had in the 20th century. The trade-off is that lifespans are longer and the quality of life higher than a generation ago. If you’re planning for your education, it’s a good idea to think through exactly how you’ll pay off college loans when you graduate.

For more information on student loans, please see: What is the Average Student Loan Debt?