Repaying student loans on a 10-year plan

Paying a student loan within a decade is possible. Get a simple look at two different ways to pay off your student loan in 10 years, and find the right one for you.

Transcript
Close Disclaimer
The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.
Close Transcript
Let’s take a look at repaying your student loans on a 10-year plan.

There are basically two approaches to achieving this: the standard 10-year repayment plan and the graduated repayment plan.  With both of these plans, your payments are going to be established before you begin repaying your loan. The difference is, on the standard plan, your payments stay the same over the course of your repayment. With the graduated plan, your payments start out low and increase over time.

So, say you get a steady job with a good salary right after leaving school. You may also be living with your parents and keeping your expenses low so you can focus on paying off your loans.

In any case, let’s say you’ve got $30,000 in combined student loans. And the interest rate on all of your loans is 4 percent.

First let’s take a look at the standard 10-year repayment plan.

Using a loan calculator at studentaid.ed.gov, we find that your monthly payment in this situation is going to be about $350 for 10 years.

Over the 10 years on this plan, you’ll end up paying about $36,450 total – that’s $6,450 in interest after subtracting your original principal of $30,000.

Now, let’s compare this to graduated repayment. With graduated repayment, your monthly payments will start out lower, and then increase over time. Looking at a loan calculator with our previous numbers, you might start with $170 a month in this scenario, and then increase to about $510 toward the end. This could be a good option if you are in a career with a low salary to start that you expect to increase significantly in a few years. However, because you’re paying less for the first couple years, very little of your first monthly payments will go towards paying off your principal. And for the first few years you might just be paying the interest on your loans. As your principal stays larger, more interest will accrue throughout the beginning of your loan meaning you will end up spending more over the life of your loan than in a standard 10-year plan.

So looking again at our example…

in the end, you’ll pay around $8,050 in interest with a graduated repayment plan, compared to the standard 10-year plan, where your interest is $6,450. So you’re paying about $1,600 more over the life of the loan.

So, you can see, there are trade-offs: being able to pay less at first means you'll end up paying more in the long run, but the additional expense may worth a lower initial payment. Either way, by doing a little bit of research, you can figure out which is the best choice for you.
Let’s take a look at repaying your student loans on a 10-year plan.

There are basically two approaches to achieving this: the standard 10-year repayment plan and the graduated repayment plan.  With both of these plans, your payments are going to be established before you begin repaying your loan. The difference is, on the standard plan, your payments stay the same over the course of your repayment. With the graduated plan, your payments start out low and increase over time.

So, say you get a steady job with a good salary right after leaving school. You may also be living with your parents and keeping your expenses low so you can focus on paying off your loans.

In any case, let’s say you’ve got $30,000 in combined student loans. And the interest rate on all of your loans is 4 percent.

First let’s take a look at the standard 10-year repayment plan.

Using a loan calculator at studentaid.ed.gov, we find that your monthly payment in this situation is going to be about $350 for 10 years.

Over the 10 years on this plan, you’ll end up paying about $36,450 total – that’s $6,450 in interest after subtracting your original principal of $30,000.

Now, let’s compare this to graduated repayment. With graduated repayment, your monthly payments will start out lower, and then increase over time. Looking at a loan calculator with our previous numbers, you might start with $170 a month in this scenario, and then increase to about $510 toward the end. This could be a good option if you are in a career with a low salary to start that you expect to increase significantly in a few years. However, because you’re paying less for the first couple years, very little of your first monthly payments will go towards paying off your principal. And for the first few years you might just be paying the interest on your loans. As your principal stays larger, more interest will accrue throughout the beginning of your loan meaning you will end up spending more over the life of your loan than in a standard 10-year plan.

So looking again at our example…

in the end, you’ll pay around $8,050 in interest with a graduated repayment plan, compared to the standard 10-year plan, where your interest is $6,450. So you’re paying about $1,600 more over the life of the loan.

So, you can see, there are trade-offs: being able to pay less at first means you'll end up paying more in the long run, but the additional expense may worth a lower initial payment. Either way, by doing a little bit of research, you can figure out which is the best choice for you.

Up Next

Contact Us

  • Mon-Fri 8 a.m. to midnight Eastern Sat 8 a.m.-8 p.m. Eastern, Sun 9 a.m.-8 p.m. Eastern
    866.736.2205
  • Schedule an appointment