The Difference Between 10-Year vs. 20-Year Student Loans

The options available for student borrowers and for student loan consolidation can seem almost endless. There are public student loans and private student loans, and they come in an enormous variety of lengths, interest rate, and monthly payments — it seems like deciding which student loan is the best for you can seem like a nightmare.

One big difference between student loan offerings is the length, and two of the most common offerings are 10-year student loans and 20-year student loans. Student loans generally have the same interest rate regardless of term length, so a shorter loan will have higher monthly payments but will cost you less overall. Simply comparing these two in depth can provide a great deal of understanding of the importance of the term length on your student loans.

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In this article

    What’s the payment on a 10-year student loan?

    A 10-year student loan, which is often considered the standard student loan, is exactly what it sounds like — a student loan where, if you make the minimum monthly payment each month, will be paid off in ten years. 

    Currently, a federal subsidized student loan has an interest rate of 2.75% for undergraduate borrowers. Let’s say you need to borrow $5,000 on a federal subsidized loan and plan to repay that loan in 10 years. In that case, your monthly payment would be $48 and you’d end up paying a total of $725 in interest in addition to repaying the $5,000 you borrowed.

    Let’s say you needed to instead borrow $10,000 on a private student loan. Currently, private student loans are available with a fixed APR of 4.25% (though the rate will vary according to your credit history). In that case, you’d need to pay $102 a month for 10 years, paying a total of $2,293 in interest over the course of that loan in addition to repaying the $10,000.

    What’s the payment on a 20-year student loan? 

    So, how does that $5,000 loan at 2.75% look if you chose a 20-year student loan? In that case, you would only have to pay $27 a month for 20 years — a much smaller monthly payment — but you would end up paying a total of $1,506 in interest beyond the initial $5,000 you borrowed. That’s over twice the amount of interest for twice the length of the loan.

    What about the $10,000 private loan at 4.25%? If you took that loan, you would only need to pay $62 a month for 20 years — again, a much smaller monthly payment than the 10-year version of this loan — but you would end up paying a total of $4,862 in interest beyond the initial $10,000 you borrowed.

    10-year student loans vs. 20-year student loans

    As you can see from these two examples, a 10-year student loan offers higher monthly payments, but you will pay much less in interest — and much less overall — over the course of repaying the loan compared to a 20-year student loan at the same interest rate.

    [ Next: Here Are the Details of Paying Off Student Loans ]

    This seems like a difficult choice for borrowers. On the one hand, paying less interest overall is a good thing because over the long run you keep more money in your pocket. On the other hand, lower monthly payments make your monthly bills much more tolerable. How do you resolve that dilemma?

    When to choose 10-year or 20-year student loans 

    Choose the shortest term loan as the default option

    Unless there is an exceptional circumstance, you should choose the 10-year student loan, paying the higher monthly payments to reduce your overall debt. This is particularly true for student loans, as you’ll be repaying them early in your professional life, when you’re more likely to be single and not facing the extra costs of parenthood or homeownership. Paying those loans off as early as possible not only minimizes the total interest you’ll pay, but maximizes your cash flow later on when you’ll be facing those costs.

    If you’re having difficulty making those payments, consider deferment or forbearance

    Depending on your exact situation, if you’re unable to successfully make student loan payments for a while, you may be able to apply for forbearance, in which payments stop but interest accrues. You may also apply for deferment, in which payments stop but interest does not accrue.

    In other words, if you’re struggling because of a life or career change, talk directly to your lender and see what your options are for forbearance or deferment of your loans. Being proactive and talking to your lender is a much better approach than just paying late or skipping payments.

    Remember you can refinance or consolidate

    If you find yourself in a situation where it’s clear that your inability to pay is going to extend over a longer period, or the ability to make your monthly payments is extremely difficult, that’s the right time to consider refinancing your student loan into a longer term. You might also consider refinancing your 20-year student loan into a 10-year student if interest rates have recently fallen and you can pay the higher monthly payments. You shouldn’t consider refinancing for other reasons; for example, student loan consolidation won’t provide a big credit score boost.

    Perhaps you’re finding it hard to find a foothold in your career path, or you’re facing a period of long-term unemployment, or a major life change has disrupted your ability to work. These are also situations in which refinancing or consolidation make the most sense, particularly when interest rates are currently so low.

    [ Read: The Student Loan Consolidation Guide ]

    Remember, the most powerful move you can make with your student loans is to minimize your interest rate. Regardless of the term of your loan, a lower interest rate will help tremendously in terms of repayment. Even a 0.25% reduction in interest rate can save you hundreds over the lifetime of a large loan.

    Check Your Student Loan Rates

    View our top-rated lenders and find the best rates today. It’s quick and easy.

    Don’t bank on student loan forgiveness

    There has been much political discussion in recent months about various student loan forgiveness plans, with individuals proposing all kinds of different plans. Even if some of those options seem likely to come to fruition, don’t bank on student loan forgiveness.

    Instead, make the best choice for you assuming that nothing changes, but keep an eye out for new programs and take advantage of them if they do come to fruition.

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Trent Hamm

    Founder & Columnist

    Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Loans Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.