Student loan repayment process: Everything you need to know

El Nariz/Shutterstock

Most student loan borrowers can plan on paying off their student loans within 10 years of graduation — the standard repayment plan for federal student loans. However, the 10-year rule doesn’t apply to every borrower. The federal government has several repayment options that borrowers may switch to, and private lenders have their own nuances.

When does student loan repayment start?

If you have federal student loans, repayment starts six months after you graduate or drop below part-time status. The six months in between is known as the grace period. Interest may still accrue during this grace period if you have unsubsidized loans, so you can choose to start making payments early if you’d like to decrease the amount of interest that gets added to your loan balance.

If you have private student loans, repayment will depend on the lender’s terms. Many private lenders also have a six-month grace period, but there are others that extend the grace period to nine months or even longer. Contact the lender if you’re unsure of when your first due date is.

What is the average repayment period for a student loan?

It’s hard to nail down an average repayment term for student loans, since options vary by lender and borrowers often change their plan partway through repayment. However, there are a few standard term lengths that borrowers can choose from.

Standard federal student loan repayment plan

The standard federal student loan repayment plan is 10 years. If you take out a federal student loan, you’ll be automatically assigned to this plan, and your monthly payments will be consistent across those 10 years. This option makes loan payments predictable, saves you more money over time and gets you out of student debt fastest.

Alternative federal student loan repayment plans

Federal borrowers may switch to a graduated or extended repayment plan if they’re having trouble making payments on the standard plan. A graduated repayment plan starts out with small payments that slowly increase over a 10-year term until the loan is paid off. An extended repayment plan lets you repay your loan balance over 25 years, though these payments can be either fixed or graduated.

These plans might be useful if you don’t have a high-paying job immediately out of school but expect to earn more as you establish your career; however, you’ll ultimately pay more over time than with other plans.

Federal borrowers can also choose to consolidate their loans into a Direct Consolidation Loan. With this type of loan, the repayment term may be extended by up to 30 years.

Income-driven repayment plans

Federal loan borrowers have the option of enrolling in several income-driven repayment (IDR) plans, which determine your monthly student loan payments based on your income and family size. The four main options are:

  • Pay As You Earn Repayment Plan (PAYE Plan). With a PAYE Plan, your monthly payments will equal 10 percent of your discretionary income over 20 years. Your payments will never be more than your payments on the standard plan.
  • Revised Pay As You Earn Repayment Plan (REPAYE Plan). Under REPAYE, your monthly payments will equal 10 percent of your discretionary income. Your repayment is also extended to a 20- or 25-year term.
  • Income-Based Repayment Plan (IBR Plan). For IBR Plans, your payments are equal to 10 percent or 15 percent of your discretionary income, depending on when you took out your loan. Your repayment term is either 20 or 25 years.
  • Income-Contingent Repayment Plan (ICR Plan). The ICR Plan keeps monthly payments to 20 percent of your discretionary income or what you’d pay under a 12-year term, whichever is lower. This plan is available for a 25-year term.

One of the main benefits of income-driven repayment plans is that they can bring your payments down to $0 during tough economic times — plus, if you have a balance remaining at the end of your term, it will be forgiven. However, if your income does increase, so will your payments.

Private student loan repayment plans

Unlike federal student loans, private student loans don’t have a standard student loan repayment process. However, they may have unique student loan repayment plans that other lenders don’t offer.

For instance, some private lenders require you to start repayment as soon as funds are disbursed, while others let you make interest-only payments while in school or defer any payments until you leave school. Others may give you the option to pay interest plus a small monthly payment — like $25 — while you’re in school in order to begin chipping away at your balance early.

In many cases, private student loans will offer repayment terms of anywhere between seven and 15 years, although it’s possible to find lenders with terms as short as five years or as long as 20 years. Your available term lengths will depend on your lender and what type of degree you’re funding.

What is the best student loan repayment plan?

The best student loan repayment plan depends on your goals and finances. For example, those who have a lot of student loan debt relative to their income should use an income-driven repayment plan, while those who want to pay off their loans quickly may be better off with the standard plan.

Borrowers with private student loans should carefully consider all of the repayment term options available to them. In general, it’s best to choose the shortest repayment term that is affordable — choosing a shorter repayment term means less interest paid over the life of the loan.

What happens if you’re having trouble paying your student loan?

When something unexpected arises — like a job layoff or sudden illness — staying on top of your student loans can be difficult. In these situations, missing a payment will put your loan account into delinquency until the past-due debt is paid.

Accounts that are delinquent by 90 days or more are reported to the three credit bureaus, which adversely affects your credit. Borrowers who are experiencing financial hardship for any reason should reach out to their student loan servicer or lender.

If you’re having trouble managing your federal student loans, your servicer can explain your options to help make payments more manageable. This can be through either an IDR plan — which can result in a monthly payment as low as $0, depending on your income — or deferment or forbearance, where you temporarily stop making payments.

Although private student loans don’t offer the same hardship benefits as federal loans, it’s still important to reach out to your lender to learn about its case-by-case hardship programs. Working with your lender on a manageable repayment plan as early as possible can help you minimize further financial challenges later on.

Student loan repayment in the coronavirus pandemic

During the COVID-19 crisis, the federal government has temporarily suspended payments, instituted 0 percent interest charges and stopped collections on federally owned student loans. If you currently have federal student loans, you’re not required to make any payments during this emergency measure.

The temporary relief goes through Aug. 31, 2022. If you can’t afford to make payments, you don’t need to reach out to your lender. It’s automatically set up through the Department of Education for all federal student loans.

If you’re on track for Public Service Loan Forgiveness (PSLF), the suspended period won’t have an impact on your progression unless you no longer meet the regular eligibility requirements. Even if you didn’t make qualifying payments during the emergency relief, you’ll get credit as if you did, so your timeline is still intact.

What happens if you never pay your student loans?

If you never pay your student loans, you will go into default. For most federal student loans, you’ll default after 270 days of nonpayment, although loan servicers may declare a Perkins Loan defaulted if it’s not paid by the due date. For private lenders, the specific time frame may vary.

The default is reported to credit bureaus, and your credit score will drop. This mark on your credit report makes it harder to borrow future credit, like a credit card or auto loan. It also makes you ineligible for additional federal financial aid.

Your wages can also be garnished, and lenders might send your loans to collections or take legal action. If you default on federal loans, you’ll lose protections like deferment and forbearance, and the entirety of your unpaid balance will immediately become due. Your federal tax refunds may also be garnished.

Next steps

There are a few factors to consider when deciding on a student loan repayment plan, including whether or not you have a job lined up after graduation, how much you owe and more.

Here are some additional tips as you plan for the student loan repayment process:

  • Make interest payments. If you have the option and can afford it, start making interest payments immediately. Doing so avoids compound interest — in other words, paying interest on your unpaid interest. Even chipping away little by little while you’re in school can help you once you graduate.
  • Consider deferment or forbearance. If you’re facing financial hardship and can’t make your loan payments, reach out to your lender about deferment or forbearance. This lets you temporarily pause or lower your monthly payment for a period of time. You may still accrue interest on your loans.
  • Refinance your student loans. Refinancing your student loans can help lower the cost of your debt in the long run by lowering your interest rate. However, be aware that if you refinance federal loans, those loans will convert into private student loans, so you’ll lose benefits like income-driven repayment, forbearance and loan forgiveness options. You can’t switch back to a federal loan once you’ve refinanced.