Last Updated on August 25, 2023
If you’re wondering how long student loans are amortized, you’re not alone. Student loan repayment is confusing for many borrowers, and the concept of amortization can be especially confusing.
But don’t worry: it’s not as complicated as it seems! In this post, we’ll explain amortization and how it works—and then tell you exactly how long student loans are amortized.
What Is Amortization?
Amortization is a way to pay back your debt over time. It may sound simple, but there are actually a lot of different ways people can structure their debt repayments. For example, some people might choose to make small monthly payments on credit card debt while making larger payments on mortgage loans; others may choose to make one large payment each year on home loans.
The most common way for student loans and other types of consumer debt to be paid back is through amortization. Amortization schedules are based on an interest rate and an amount borrowed; they take into account both principal (what you owe) and interest (money owed to lenders). The schedule also takes into account when payments start: whether they’re made at the beginning or end of each month can affect how quickly your balance goes down in relation
How Long Are Student Loans Amortized
Making a financial plan to repay your college student loans can be overwhelming, but it doesn’t have to be. Amortization is one of many technical terms that may seem like an intimidating concept, but understanding it is key to finding the right repayment plan and paying off your student loan faster.
Here are six things you need to know to understand student loan amortization:
The vast majority of student loans are installment loans.
All student loans are amortized.
Amortization changes over time.
An amortization schedule can show you how your payments are being applied.
Your repayment plan affects your amortization schedule.
Negative amortization can make your loan balance grow.
The Vast Majority of Student Loans Are Installment Loans
There are generally two types of loans, revolving and installment.
Revolving loans, like your credit card, provide a line of credit from which you can borrow continuously. Installment loans are borrowed in a lump sum and paid back over time on a payment schedule. All federal student loans and most private student loans are installment loans.
You may have borrowed at the start of each school year to pay tuition and other education-related expenses, but that likely just means that each year you took out a new student loan. Unless you consolidate or refinance, each of your student loans is a separate installment loan.
All Student Loans Are Amortized
All installment loans, which include student loans, are amortized. Amortization is the process of paying back an installment loan through regular payments.
When a student loan is amortized, that means that a portion of the monthly payment is applied to interest and a portion is applied to reduce the principal balance.
Amortization Changes Over Time
Although you will pay the same amount every month on your student loan, the portion of your payment that is applied to interest changes over the life of the loan.
In the beginning, most of your payment is applied to interest. Even though you are making regular payments each month, the principal loan balance decreases more slowly during this period.
Don’t worry, though! As your principal balance declines, less interest accrues each month, so more of your monthly payment is applied to the principal, reducing your student loan balance more quickly.
If you can pay more than your fixed monthly payment, you can pay your student loan off faster and lower your total payments by requesting that any additional amount be applied to the principal. Just make sure to talk with your student loan servicer about how to apply the payments. Your servicer is the organization that sends you bills and collects your payments.
An Amortization Schedule Can Show You How Your Payments Are Being Applied
An amortization schedule is a table that shows the amount of principal and interest that you pay each month over the life of a loan. While each payment that you make is the same amount, remember that the amount of interest paid by each payment decreases over time.
To better understand how this works and to see how your payments are being applied, request an amortization schedule from your loan servicer.
Your Repayment Plan Affects Your Amortization Schedule
If you have federal student loans, you can select from several different repayment plans that affect how quickly you will repay each loan. Standard repayment – in which payments are fixed and made for up to 10 years – is the fastest way to repay your loan, because you will pay more each month over a shorter period of time.
However, if you have trouble managing the monthly payments under the standard repayment plan, you might consider enrolling in a graduated repayment plan, which starts with lower monthly payments that increase every two years, or applying for an income-driven repayment plan, which sets monthly payments based on your income and family size.
These changes will affect your amortization schedule, and you should talk to your loan servicer to better understand the impact.
student loan forgiveness
If you are employed by a U.S. federal, state, local, or tribal government or not-for-profit organization, you might be eligible for the Public Service Loan Forgiveness Program. Keep reading to see whether you might qualify.
To ensure you’re on the right track, you should submit a Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application (PSLF Form) annually or when you change employers. We’ll use the information you provide on the form to let you know if you are making qualifying PSLF payments. This will help you determine if you’re on the right track as early as possible.
*This provision will be waived through October 31, 2022 as part of the limited PSLF waiver. Learn more.
Suspended Payments Count Toward PSLF and TEPSLF During the COVID-19 Administrative Forbearance
If you have a Direct Loan and work full-time for a qualifying employer during the payment suspension (administrative forbearance), then you will receive credit toward PSLF or TEPSLF for the period of suspension as though you made on-time monthly payments in the correct amount while on a qualifying repayment plan.
To see these qualifying payments reflected in your account, you must submit a PSLF form certifying your employment for the same period of time as the suspension. Your count of qualifying payments toward PSLF is officially updated only when you update your employment certifications.
Digital signatures from you or your employer must be hand-drawn (from a signature pad, mouse, finger, or by taking a picture of a signature drawn on a piece of paper that you then scan and embed on the signature line of the PSLF form) to be accepted. Typed signatures, even if made to mimic a hand-drawn signature, or security certificate-based signatures are not accepted.
Note: In-grace, in-school, and certain deferment, forbearance, and bankruptcy statuses are not eligible for credit toward PSLF.
Have questions? Find out what loans qualify and get additional information about student loan flexibilities due to the COVID-19 emergency.
Qualifying Employer
Qualifying employment for the PSLF Program isn’t about the specific job that you do for your employer. Instead, it’s about who your employer is. Employment with the following types of organizations qualifies for PSLF:
- Government organizations at any level (U.S. federal, state, local, or tribal) – this includes the U.S. military
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program.
The following types of employers don’t qualify for PSLF:
- Labor unions
- Partisan political organizations
- For-profit organizations, including for-profit government contractors
Contractors: You must be directly employed by a qualifying employer for your employment to count toward PSLF. If you’re employed by an organization that is doing work under a contract with a qualifying employer, it is your employer’s status—not the status of the organization that your employer has a contract with—that determines whether your employment qualifies for PSLF. For example, if you’re employed by a for-profit contractor that is doing work for a qualifying employer, your employment does not count toward PSLF.
Other types of not-for-profit organizations: If you work for a not-for-profit organization that is not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, it can still be considered a qualifying employer if it provides certain types of qualifying public services.
Full-time Employment
For PSLF, you’re generally considered to work full-time if you meet your employer’s definition of full-time or work at least 30 hours per week, whichever is greater.
If you are employed in more than one qualifying part-time job at the same time, you will be considered full-time if you work a combined average of at least 30 hours per week with your employers.
If you are employed by a not-for-profit organization, time spent on religious instruction, worship services, or any form of proselytizing as a part of your job responsibilities may be counted toward meeting the full-time employment requirement.
Eligible Loans
Any loan received under the William D. Ford Federal Direct Loan (Direct Loan) Program qualifies for PSLF.
Loans from these federal student loan programs don’t qualify for PSLF: the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan (Perkins Loan) Program. However, they may become eligible if you consolidate them into a Direct Consolidation Loan.
Student loans from private lenders do not qualify for PSLF.
Under normal PSLF Program rules, if you consolidate your loans, only qualifying payments that you make on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF. Any payments you made on the loans before you consolidated them don’t count. However, if you consolidate these loans into a Direct Loan before October 31, 2022, you may be able to receive qualifying credit for payments made on those loans through the limited PSLF waiver.
