When you graduate from college, the standard repayment plan puts you on track to pay off your federal student loan debt in 10 years. If you stick with that plan, there’s a good chance your student loans will be gone by the time you reach your mid-30s.
However, reality doesn’t always reflect that ideal. According to research from Citizens Financial Group, 60 percent of student loan borrowers currently aged 35 and under believe they will pay off their student loans in their 40s.
Why does it take longer than expected to pay off student loan debt?
Unfortunately, many graduates aren’t able to stick with the standard repayment plan. The National Center for Education Statistics (NCES) found that students are struggling because of student loan debt.
According to an NCES report that tracked the high school class of 2002 for 10 years, 25 percent of borrowers worked more than one job because of student loan debt. On top of that, 34 percent of borrowers took less desirable jobs.
With borrowers struggling and wages stagnant over the last few years, graduates are extending their loan terms. Many do so through deferment, forbearance, or default. In the Direct Loan Program, there are 15.7 million borrowers in active repayment. Compare that number to the 10.1 million Direct Loan Program participants with loans in deferment, forbearance, or default.
Additionally, because it’s more difficult to afford student loan payments, more graduates are turning to income-driven repayment, which can extend student loan terms to 20 or 25 years — sometimes more than doubling the standard repayment period.
Analysis from the think tank New America indicates that borrowers are increasingly turning to these plans, which limit payments to a small percentage of a borrower’s income. From 2013 to 2014, the number of enrollees in these programs doubled.
The Citizens Financial Group survey found that borrowers spend nearly 18 percent of their salaries on student loan payments. With that stress on their paychecks, it’s little surprise more students extend their loan terms in the name of better cash flow each month.
How to pay off student debt sooner
If you don’t want to be stuck paying off your student loans into your 40s (or beyond), it makes sense to take action now.
Income-driven repayment makes sense when you are struggling to make payments. However, you can make a plan to boost your income and put more money toward student loan repayment. If you have time, consider starting a side gig for extra income.
Review your expenses and cut back on your spending. Apply the savings toward student loan repayment. Combine this strategy with increasing your income for better long-term results.
Finally, consider refinancing your student loans. According to the Citizens Financial Group survey, fewer than 50 percent of borrowers have looked into refinancing options. You might be able to lower your student loan interest rates and payments and reduce your loan term with the help of refinancing.
Before you refinance with a private lender, though, it’s important to understand that you could give up federal protections. Learn more about refinancing student loans and evaluate your options to get an idea of what might work best for you.
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