What Loan Term Is Right for Me?

loan term

Are you thinking about refinancing your student loans? There are many good reasons to look into this option. It’s important to note that though it can provide benefits, this action doesn’t make sense for all borrowers.

If you refinance federal loans, you will no longer be able to take advantage of federal repayment programs or loan forgiveness. And refinancing means getting an entirely new loan, which means your loan servicer may change — and any benefits you have with the current servicer could change, too.

That shouldn’t stop you from considering the option. Refinancing your student loans could be the right move if doing so will save you money by getting a lower interest rate. It also gives you the opportunity to change your loan terms, and that could be a huge financial benefit for you if your current term doesn’t work for you.

What student loan terms are available?

Your student loan term refers to how long the lender expects it will take you to repay your debt. Student loan terms range from relatively short to almost as long as a traditional mortgage. You could get a loan with a term of 5 years or your could repay your loan over 20 years.

That’s a big difference, and it’s hard to know what the right option for you is when there’s so much to choose from.

And it does matter, because whether you choose a shorter or longer term, they’ll both make a financial impact now and into the future. To choose what’s best, you need to understand exactly what those impacts look like and how they differ from one another.

How a shorter loan term impacts your financial situation

The term on your student loans affects a few things. The first could be the interest rate on the loan itself. A shorter loan term, such as 5 to 10 years, may allow you to refinance at a lower rate.

That’s not a guarantee, and you’ll still need to have a great credit score in order to secure the best interest rate available. But it’s worth asking your lender about, because a lower interest rate means a cheaper loan.

A shorter loan term also means you’ll pay back your debt faster. Pretty obvious, right? That’s good because it’s another way to save money on your debt. The faster you pay back the loan, the faster you can stop paying interest.

What might not be so obvious is the potential downside. Shorter student loan terms mean higher monthly payments. Instead of being stretched out over decades, your payments are compressed into 5 or 10 years, requiring you to pay more each month.

That might not be a bad thing for you if your monthly cash flow is healthy and you feel comfortable taking on a bigger payment. In fact, this is the financially savvy way to go because, again, the faster you pay off your debt, the less money you have to devote to interest.

Debt is a major financial burden. The sooner you can rid yourself of it, the sooner you can feel more secure and free up cash to put toward other goals, like an emergency fund, investments, or your retirement savings.

What about longer student loan terms?

None of the above reasoning means that longer loan terms are bad, and they may be the exact right option for you if you’re already feeling financially stressed. A loan term of 10 to 20 years can provide you the breathing room you need as you establish yourself, work to increase your income, and manage your cash flow wisely.

Debt is like a tool to use. You can use your loans as leverage, and getting a longer loan term is a great way to do this. You’ll secure a lower monthly payment, which can help free up your cash right now — not just in the future when the loan is completely paid off.

This allows you to save and invest today instead of funneling all your money straight to a fat student loan debt repayment each month. You’ll pay more in the long run due to interest, but if you’re disciplined and invest the money you’re not putting toward your loans, that could allow you to build up a higher net worth over the years.

Where to look when you want to change your student loan terms

If you’ve decided you’re ready to refinance and want to look at changing your loan term while you’re at it, these services provide a good place to start. They all provide various loan terms with both fixed and variable interest rates, can refinance both federal and private loans, and accept undergrad and graduate student debt.

Check out these companies and the terms they offer:

  • SoFi: Offers 5, 7, 10, 15, 20 year terms with interest rates from 2.58% - 7.25%
  • Laurel Road: Offers 5, 7, 10, 15, 20 year terms with interest rates from 2.99% - 6.99%
  • CommonBond: Offers 5, 7, 10, 15, 20 year terms with interest rates from 2.57% - 7.25%
  • LendKey: Offers 5, 7, 10, 15, 20 year terms with interest rates from 2.56% - 7.82%
  • Citizens: Offers 5, 10, 15, 20 year terms with interest rates from 3.11% - 8.46%
  • College Ave: Offers 5 to 15 year terms with interest rates from 2.75% - 7.50%

Learn more about these lenders here.

Choosing a loan term requires you to understand how the different repayment period impacts your financial situation.

Longer loan terms mean lower monthly payments, which could benefit you today if your budget is already tight. But you’ll pay more out of pocket over the life of the loan, since you’re stretching out how long you make payments (and pay interest).

A shorter loan term means saving money, since you’ll pay less in interest and may even get to refinance to a lower-interest rate loan. But the tight timeframe could put a heavy burden on your cash flow right now, so make sure you can handle high monthly payments for a little while.

There’s no one right answer for everyone. Take a look at your own situation today as well as your future financial goals to determine what loan term is right for you.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderRates (APR)Eligible Degrees 
Check out the testimonials and our in-depth reviews!
2.58% - 7.25%Undergrad
& Graduate
Visit SoFi
2.99% - 6.99%Undergrad
& Graduate
Visit Laurel Road
2.57% - 6.32%Undergrad
& Graduate
Visit Earnest
2.57% - 7.25%Undergrad
& Graduate
Visit CommonBond
3.11% - 8.46%Undergrad
& Graduate
Visit Citizens
2.56% - 7.82%Undergrad
& Graduate
Visit Lendkey
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.