Which Student Loan Term Should I Pick

Are you having trouble deciding what student loan terms are the best option for you? This article will help narrow down your options.

Choosing the right payoff term is important for your student loans. Your payoff timeline will determine both how much your loans cost per month as well as how much they cost over time. 

There's a lot to consider when deciding on student loan terms, but answering these questions will help you make the decision that's right for you. 

If you'd like to watch a video about some of your options, click here!

What loan repayment terms are available?

Different types of student loans offer different options for repayment times, so it's important to know what college loan terms are available with your specific type of educational debt. 

With federal student loans: 

  • The standard repayment plan is 10 years
  • You can also choose extended payment plans that have a payoff time as long as 30 years (if you consolidate your loans)
  • Income-driven plans require you to make payments for between 20 and 25 years before having any remaining balance of your loan forgiven

With private loans, must lenders provide the option to choose a repayment term of:

  • 5 years
  • 7 years
  • 10 years
  • 15 years
  • 20 years

While federal loans all offer the same flexible payment options, there's more variation in student loan terms among private student loan lenders. It's important to understand what options are available so you can choose the one that's right for you.  

What will your monthly payments be after graduation?

The student loan repayment term you choose will have a direct impact on the amount of your monthly payments. 

  • A loan with a longer payoff time will have lower monthly payments since you will make more payments
  • A loan with a shorter payoff time will have higher monthly payments since you won't make as many payments

With private lenders, you have to choose your repayment time up front while there's more flexibility with federal loan lenders because you can change your payoff schedule.  For that reason, you'll want to make especially sure you're choosing a private loan with a monthly payment that's likely to be affordable after graduation. 

When you look at estimated monthly payments for different college loan terms, remember that you'll likely take out multiple loans. For example, you might take out a private loan during your first and second years of school. If so, when you borrow during the first year and choose your loan payoff timeline, you need to remember you'll have multiple payments to make. If you plan on borrowing the same amount both years, double the estimated payment from your first year to get an idea of what total monthly costs will be.  

Is it more important to save on interest or reduce monthly payments?

There's a tradeoff between a low monthly payment and low interest costs:

  • A longer payoff time means higher total interest costs over time, even though each individual payment is lower
  • A shorter college loan repayment term will come with lower total interest costs over time, even though each individual payment is higher

Some borrowers will decide they'd rather choose the shortest loan possible so they can become debt-free ASAP -- even if that means making a lot of sacrifices early on to make high monthly payments. Others would prefer not to strain their budget and don't mind paying more interest over time.  

Still others view student loan debt as an inexpensive form of debt -- especially since interest is tax-deductible for borrowers whose incomes aren't too high. If you keep monthly payments low, you can use more of your money for other things that provide a better return on investment such as paying off higher interest debt (like credit cards) or investing. 

For many, a 10-year payoff time provides a good balance between a reasonable monthly payment and reasonable total interest expenses. That's why a 10-year payment period is especially popular. 

You should also remember, though, that if you'll be pursuing loan forgiveness with federal student loans, lower monthly payments should be your priority. After all, you want to pay the least amount possible and get the largest balance forgiven. 

Do you want more flexibility in your loan repayment? 

With federal student loans, changing your repayment plan is easy so you don't have to worry as much about getting stuck with your  decision on your payment timeline. If it turns out you need to lower your monthly payments by choosing a longer payoff time later, you can do that.

That's not necessarily the case with private student loans, as you're tied to the payoff time you agreed to up front -- unless you refinance your private loans. Because you're making a commitment to pay your loan on that schedule, you may decide that you'd prefer a loan with a longer loan term, even if your ideal goal is to become debt-free as soon as possible.

Say, for example, you ideally want to pay off your college loans in five years. But if you choose a five year loan repayment timeline, you'll be stuck with high monthly payments. If you end up losing your job or want to switch careers, making those payments could be a challenge. 

On the other hand, if you choose a private loan with a 15-year payoff time, you always have the option to make extra payments to become debt-free over a shorter period of time. But you won't have to do so or risk default. So if you have a tough month, you'll have the option to make your lower monthly payment. 

Longer student loan terms provide you with much more flexibility, so carefully consider whether you want to commit to high monthly payments for years to come.  

Are you planning to refinance your loans?

College loan terms are flexible on federal student loans since you can easily change your repayment timeline. But you can't really change your interest rate once you've borrowed -- at least not without giving up other federal borrower benefits. 

That's because if you want to refinance and change your rate, you would have to refinance with a private lender. You can consolidate your loans with the federal government to switch to a different loan servicer and to group multiple loans together. When you consolidate your loans, they all take on the weighted average of the interest rates in one new fixed interest rate. This is called a Direct Consolidation Loan.

Private loans are different. You can refinance private loans any time without giving up any benefits since you'd just be switching to a different private lender. Refinancing gives you the option to change your repayment timeline, your interest rate, and other terms of your student loans. 

Because it's possible to refinance, as long as you're a qualified borrower such as those with good credit, many people choose variable rate private loans with short repayment terms while they are still in school. They do this because variable rate loans typically come with a lower interest cost than a fixed rate loan -- especially if you opt for a very short repayment time, such as five years. The plan is to benefit from this low rate and then refinance after graduation. This option is most popular with people who expect high salaries when they graduate.

So which student loan term is right for you?

Ultimately, there's no one right answer to which student loan repayment term is best. That's because different borrowers benefit from different college loan terms.

The good news is, your repayment timeline isn't set in stone. You can talk with your loan servicer about changing your payoff schedule for federal loans or can refinance private loans to change your payment timeline.

Juno can help you get the lowest private student loan interest rates with a repayment schedule that works for you. Juno negotiates with lenders on behalf of you and other students and families to get the most favorable possible payoff terms.

Join Juno today to find out more about your options for affordable private student loans to help fund your degree. 

Christy Rakoczy Bieber
Written By
Christy Rakoczy Bieber

Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbooks and serving as a subject matter expert.

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