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When you take out a private student loan, you’ll typically have a choice of several repayment plans. The repayment plan you choose can have a big impact on not only your monthly payment, but how much interest you’re charged over the life of your loan.

In this post:

Private student loan repayment options

There are four common repayment plans for private student loans, although not all lenders offer all of them:

  1. Immediate repayment
  2. Interest-only repayment
  3. Partial interest repayment
  4. Full deferment

The important thing to remember about each of these repayment plans is that interest starts accruing as soon as your student loan is disbursed (that’s when you or your school receive the funds). If you’re not at least paying the interest that you owe each month, your loan balance will grow while you’re in school.

Immediate repayment plan

An immediate repayment plan means you make full monthly payments while still in school.

Pros: If you’re able to swing it, choosing an immediate repayment plan with full monthly payments starting as soon as you take a loan out will minimize the interest you pay, resulting in the greatest savings. Because you’re paying down both interest and principal while you’re still in school, you’ll already have made a good start on repaying your loan by the time you graduate.

Cons: The drawback to an immediate repayment plan is that for many students, it’s not realistic to make full monthly payments while still enrolled in college.

Interest-only repayment plan

When choosing an interest-only repayment plan, you’ll pay only the interest on your loan while you’re still in school.

Pros: If you choose an interest-only repayment plan, your monthly payments will be more manageable, and your loan balance won’t grow while you’re in school.

Cons: You won’t make any headway paying down your loan balance while you’re a student. But at least you won’t owe more than you borrowed when it’s time to start making full payments.

Partial interest repayment plan

With a partial interest repayment plan, you’ll make a fixed monthly payment while still in school that only covers part of the interest you owe.

Pros: A partial interest repayment plan lets you pay a fixed amount — say $25 or $50 a month — that doesn’t take care of all the interest you owe, but does keep your loan balance from growing too quickly. Choosing this plan can be a relatively painless way to keep your loan balance in check, and reduce the total amount repaid.

Cons: You’ll still owe more than you borrowed when you graduate, but your loan balance won’t grow as quickly.

Full deferment

If you choose full deferment, you pay nothing while you’re enrolled in school. During this time, though, your loan balance grows.

Pros: A full deferment plan lets you put off worrying about repaying your student loans altogether until you’re out of school. Some lenders offer a six-month grace period after you graduate before payments are due.

Cons: Interest charges pile up while you’re in school, and your loan balance keeps growing.

How much you can save by making payments in school

Making full or partial loan payments while you’re in school can save thousands of dollars in interest. That’s because unpaid interest that accrues while you’re a student is capitalized, or added to your loan balance, when you leave school.

PlanAPRMonthly paymentTotal repaid
Immediate repayment6.23% to 11.74%$111 to $139$13,323 to $16,710
Interest-only repayment6.23% to 11.74%$112 to $142$15,953 to $21,730
Deferred repayment6.21% to 10.86%$144 to $211$17,231 to $25,327
Source: Citizens Bank. Monthly payments are post graduation and vary according to the annual percentage rate of the loan. Calculations assume borrower is enrolled in school for 45 months and takes advantage of 6-month grace period.

The table above shows that making full, immediate payments on a $10,000 loan as soon as you take it out can save more than $8,000 in total repayment costs. The higher the interest rate on your loans, the bigger the savings.

Choose a shorter repayment term and save

The repayment term is how many years of full monthly payments you’ll make before your loan is paid off. Picking a shorter repayment term can not only get you a better interest rate, but you’ll pay less in total interest because you’re paying down principal faster. The tradeoff is that the shorter the repayment term, the higher your monthly payments.

  • The standard repayment term on private and government student loans is 10 years
  • Some private lenders offer shorter and longer repayment terms — 5, 7, 15 or 20 years, for example.
Repayment termAPRMonthly paymentTotal repaid
5 years4.72% to 11.45%$187 to $220$13,134 to $17,760
10 years6.23% to 11.74%$112 to $142$15,953 to $21,730
15 years6.45% to 12.04%$87 to $120
$18,209 to $26,462
Source: Citizens Bank. Monthly payments are post graduation and vary according to the annual percentage rate of the loan. Calculations assume borrower makes interest-only payments while in school for 45 months and during 6-month grace period.

The table above shows that paying a $10,000 loan off in 5 years instead of 15 can save nearly $9,000 in total repayment costs. The savings are magnified for borrowers with higher student loan interest rates.

Important: Pick a plan based on how much you need to borrow

With private student loans, it’s important to choose a repayment plan based on the total amount you expect to borrow, because you’ll probably be living with the plan you choose until you pay off or refinance your loan.

The monthly payment on the loan you take out as a freshman may seem manageable — but remember that you’ll probably borrow each year you’re in school.

Tip: Use a student loan repayment calculator to estimate what your monthly payments will be for your expected total student loan debt at graduation. Note how changing the loan repayment term affects the monthly payment and total repayment costs. And keep in mind, a longer loan term will make your monthly payments more affordable, but also increase your total repayment costs.

Learn More: 11 Strategies for Paying Off Your Student Loans Faster

About the author
Matt Carter
Matt Carter

Matt Carter is a Credible expert on student loans. Analysis pieces he’s contributed to have been featured by CNBC, CNN Money, USA Today, The New York Times, The Wall Street Journal and The Washington Post.

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