While repayment plan terms offer some insight into the amount of time it takes to pay off student loans, repayment in practice can take a different course. Here are some actions that can increase or decrease the amount of time it takes to repay a student loan in full.
Extra payments. Some borrowers can afford to make extra payments on their student loans. Consistent extra payments will reduce the time it takes to pay off the debt and the lower the total repayment amount. For example, suppose a borrower owes $30,000 at 6% interest with a 10-year repayment term. The monthly payment is about $333 and the total payments are $39,967. If the borrower makes an extra payment of $50 every month, the total payments drop to $38,263 and the loan will be paid off in 8.3 years.
Deferments and Forbearances. Student loan deferments and forbearances allow borrowers to temporarily stop making payments on their student loans. The economic hardship deferment for federal student loans is limited to 3 years in total duration, as are forbearances. With private student loans, forbearances are typically limited to a year in total duration. Deferments and forbearances add to the amount of time it takes to repay the debt. Interest continues to accrue on unsubsidized loans during a deferment and on all loans during a forbearance, and will be capitalized by adding it to the loan balance if it is not paid as it accrues.
Refinancing. Refinancing a student loan can lower monthly payments on student debt, but lower payments inevitably mean it will take longer to repay the loan in full. For example, refinancing a loan with an initial 10-year payment period could result in 30 years of repayment. Anytime you refinance a federal loan, you lose all federal benefits including income-driven repayment plans, generous deferment options, any subsidized loans you may have had, and the potential for loan forgiveness.
Delinquency and Default. A student loan is considered delinquent after one late or missed payment. The student loan goes into default after a continued period of delinquency, 120 days for private student loans and 360 days for federal student loans. Missed payments will obviously add to the timeline for repayment, as well as other consequences.
According to an analysis of government data by Mark Kantrowitz, Publisher and VP of Research of Savingforcollege.com, the average time in repayment for federal student loans is up 16 or 19 years, depending on whether the maximum repayment term is weighted by the number of borrowers or the amount of the loans.