When deciding on a student loan repayment schedule, the option with the lowest possible monthly payment is not always best.
That’s because of amortization, the process of paying back a loan on a fixed payment schedule over a period of time. A repayment option with the lowest monthly payment typically means the loan is stretched out over a longer time frame. This results in the borrower paying more in interest than they would have with a shorter loan term and a higher monthly payment.
Read on to learn more about student loan amortization, how it affects your monthly payments, and ways to potentially lower the amount you pay in interest on your student loans.
Table of Contents
Key Points
• Amortization means paying off loans in fixed monthly payments that include both interest and principal, with early payments weighted more toward interest.
• Longer loan terms lower monthly payments but increase total interest paid over time.
• Negative amortization can occur on income-driven plans if payments are too low to cover monthly interest.
• Paying extra toward principal or making extra payments can help reduce total interest owed.
• Refinancing may lower your interest rate or term but removes federal protections if refinancing federal student loans.
Exploring Amortization
Student loans are amortized because they are installment loans that have fixed monthly payments. Here’s a closer look at the process of student loan amortization.
How Amortization Works for Student Loans
With an amortizing loan, a borrower pays both the principal balance and interest each month. This is called a student loan amortization schedule. The schedule begins with the full balance owed, and the payments are then calculated by the lender over the life of the loan to cover the principal and interest.
Interest vs Principal Over Time
At the beginning of a student loan amortization schedule, payments typically cover more interest than principal. As time goes on, a bigger amount goes toward the principal.
To help determine amortization on your student loans, it’s important to first calculate the cost of the loan. You’ll need to know these three variables:
1. The loan principal, which is the original amount you borrowed
2. The loan’s interest rate and annual percentage rate (APR)
3. The duration, or term, of the loan
Using this information, you can calculate student loan payments, including both the monthly amount and the total interest paid on the loan.
The next step is to determine how much of each monthly payment is going toward both interest and principal. That’s when the loan’s amortization schedule comes into play.
Student Loan Amortization Examples
To see how amortization works, we’ll look at a student loan that’s being paid by the borrower under the standard 10-year repayment plan. We’ll also look at how amortization changes when the borrower directs extra money to pay off the loan faster and reduce the amount of interest paid overall.
Standard Repayment Schedule Example
Let’s say a borrower takes out a $30,000 student loan at a 7.00% interest rate, amortized over a 10-year repayment period.
The borrower’s monthly payment is approximately $348. Each year, the borrower will pay about $4,180 in total on their loan. While these monthly and yearly amounts will remain the same, the proportions allocated to the principal and interest will change.
The chart below shows you what the student loan amortization schedule might look like for this loan. The chart illustrates the principal and interest amounts monthly for the first year and the last year of the loan, and annually for the years in between.
Amortization schedule for $30,000 student loan with 7.00% interest over 10 years
| Date | Interest Paid | Principal Paid | Balance |
|---|---|---|---|
| January 2025 | $175 | $173 | $29,827 |
| February 2025 | $174 | $174 | $29,652 |
| March 2025 | $173 | $175 | $29,477 |
| April 2025 | $172 | $176 | $29,301 |
| May 2025 | $171 | $177 | $29,123 |
| June 2025 | $170 | $178 | $28,945 |
| July 2025 | $169 | $179 | $28,765 |
| August 2025 | $168 | $181 | $28,585 |
| September 2025 | $167 | $182 | $28,403 |
| October 2025 | $166 | $183 | $28,221 |
| November 2025 | $165 | $184 | $28,037 |
| December 2025 | $164 | $185 | $27,852 |
| 2025 | $2,032 | $2,148 | $27,852 |
| 2026 | $1,877 | $2,303 | $25,852 |
| 2027 | $1,710 | $2,470 | $23,079 |
| 2028 | $1,532 | $2,648 | $20,431 |
| 2029 | $1,340 | $2,840 | $17,591 |
| 2030 | $1,135 | $3,045 | $14,546 |
| 2031 | $915 | $3,265 | $11,281 |
| 2032 | $679 | $3,501 | $7,780 |
| 2033 | $426 | $3,754 | $4,026 |
| January 2034 | $23 | $325 | $3,701 |
| February 2034 | $22 | $327 | $3,374 |
| March 2034 | $20 | $329 | $3,045 |
| April 2034 | $18 | $331 | $2,715 |
| May 2034 | $16 | $332 | $2,382 |
| June 2034 | $14 | $334 | $2,048 |
| July 2034 | $12 | $336 | $1,712 |
| August 2034 | $10 | $338 | $1,373 |
| September 2034 | $8 | $340 | $1,033 |
| October 2034 | $6 | $342 | $691 |
| November 2034 | $4 | $344 | $346 |
| December 2034 | $2 | $346 | $0 |
| 2034 | $154 | $4,026 | $0 |
Using this estimated example, during the first year, the borrower’s monthly payments would be about half interest and half principal. With each passing month and year of paying down the debt, more of each payment is allocated to the principal. By the final year, the borrower pays only $154 to interest and $4,026 to principal.
Accelerated Payments and Interest Savings
Using the example above, a borrower would pay $11,799.05 in interest on the loan overall. That brings the full cost of the loan to $41,799.05, and it will take 10 years to pay off.
However, making accelerated payments can help a borrower pay off the same loan faster and save a significant amount of interest.
Here’s how accelerated payments work: Let’s say you pay an additional $50 on the loan every month. So instead of a monthly payment of $348, you make payments of $398. Each year, you’ll pay $4,776 on the loan. As your loan balance goes down faster, the amount of interest you owe will also decrease.
The total interest you’ll pay overall using this method is $9,627.27. That brings the full cost of the loan to $39,627.27. So you’ll save more than $2,100 by making accelerated payments. And you’ll pay off the loan in 8 years and four months, instead of 10 years — almost two years early.
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Alternative Repayment Plans and Amortization
The 10-year Standard Repayment Plan isn’t the only option for repaying your student loans. There are alternative plans that lower your monthly payments, and some that also extend the repayment term. When you switch to a new repayment plan, your amortization schedule changes.
Income-Driven Repayment Plans
Income-driven repayment (IDR) plans base your payments on your discretionary income and family size. The monthly payments with IDR plans are generally lower than with the current standard plan because repayment is stretched out over 20 or 25 years rather than 10.
As of January 2026, there are three IDR plans available: Pay as You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). On the Income-Based Repayment plan, if you still have a balance at the end of your term, the remaining amount might qualify for student loan forgiveness.
While IDR may be an option if you’re struggling to make your current monthly payments, it’s important to understand that not only will you likely pay more in total interest on one of these plans because the repayment term is longer, but it’s also possible that your payments will dip into what is called negative amortization.
Negative amortization on a student loan is when your monthly payment is so low that it doesn’t cover the interest for that month. When this happens, it can cause the loan balance to increase.
This is not ideal, of course, but utilizing an income-driven repayment plan is a far better option than missing payments or defaulting on a federal student loan.
Graduated and Extended Repayment Options
Other federal loan repayment plans that can currently lower your monthly payments are the Graduated and Extended Repayment plans.
The Extended Repayment Plan allows borrowers to repay their loans over a period of up to 25 years. Because of the long loan term, monthly payments will generally be lower, but borrowers will pay more in interest over the life of the loan compared to plans with shorter terms. To qualify, a borrower must have more than $30,000 in outstanding Direct Loans or more than $30,000 in outstanding Federal Family Education Loans (FFEL) loans.
Under the Graduated Repayment Plan, a borrower starts with lower monthly payments that are gradually increased, typically every two years, over the course of 10 years. Your payments will never be less than the amount of interest that accrues between payments.
Managing Student Loan Amortization
To avoid the full impact of an amortized student loan, there are strategies that can potentially help lower your interest payments.
Strategies to Pay Down Principal Faster
• Pay extra on your loan. You can do this by paying more than you owe each month, or by making additional payments on your student loan, if you can afford to. Paying off the loan early may help you to pay less interest over the life of the loan.
• Take advantage of financial windfalls. If you get a bonus at work, a tax refund, or a generous gift from a relative, use that money to put additional funds toward your student loans.
• Make biweekly payments. With this strategy, you pay half your monthly payment every two weeks. After a year, you will have made one additional month’s payment on your loans, without it feeling like a heavy financial burden.
Using Extra Payments Effectively
If you opt to pay more than your minimum payments or make additional payments on your loans, let your lender know that the additional amount or payment should be applied to the principal of the loan, not the interest. That way, the extra funds can help lower the principal amount, which in turn reduces the interest you owe and can help shorten your loan term.
How Refinancing Affects Amortization
When you refinance student loans, you replace and pay off your existing loans with a new loan from a private lender, which changes your amortization schedule.
Resetting the Loan Term and Its Impact
Because you take out a new loan when you refinance, the repayment term gets reset and the new loan gets a new amortization schedule. You might be able to shorten the repayment term to pay off the loan faster (which would mean higher monthly payments), or lengthen the term to lower your monthly payments.
Just remember, you may pay more interest over the life of the loan with a longer loan term. A student loan refinancing calculator can show you how much you might save by refinancing.
Potential for Interest Savings
Ideally, with refinancing, you may get a lower interest rate if you qualify. A lower student loan interest refinancing rate would save you money in interest and lower the cost of the loan overall.
One important thing to be aware of is that if you’re refinancing federal loans, you lose access to federal benefits and programs such as income-driven repayment and federal forgiveness. When considering whether to refinance, borrowers should think carefully about whether they might need these benefits.
Recommended: Consolidation vs. Refinancing
The Takeaway
With student loan amortization, more money typically goes to interest than loan principal, especially at the beginning of the repayment term. The type of repayment plan and strategy a borrower chooses can make an impact on amortization.
A longer repayment plan may lower monthly payments, but cost more in interest over the life of the loan. Accelerated payments could save money on interest and the overall cost of the loan, and result in paying off the loan faster. And if a borrower is eligible for a lower interest rate, student loan refinancing is one alternative that may reduce monthly payments and interest paid over the life of the loan.
Weighing all of the options can help determine what course of action makes the most sense for you.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What is amortization and how does it apply to student loans?
Amortization is when loan payments are spread over a set period of time with fixed regular payments going toward the interest and loan principal; at the beginning of the repayment term, more interest goes toward the interest than the principal. Student loans are amortizing loans because they have fixed monthly payments.
Can I change my student loan amortization schedule?
Yes, there are a few different ways you can change your amortization schedule. First, you can do it by changing your repayment plan. With federal student loans, you could switch from the 10-year Standard Plan to an income-driven plan, for example. Another way to change your amortization schedule for federal or private loans is to make extra payments toward the principal, which reduces the interest you pay and shortens your loan term. Finally, refinancing student loans can also change your amortization schedule.
How can I reduce the interest paid over the life of the loan?
To reduce the interest paid over the life of the loan, you can pay more than the minimum amount due on your loan or make additional payments. Just be sure to direct that extra money toward the loan principal. Paying down the principal reduces the amount of interest you’ll pay overall and may even help you pay off your loan faster.
Does paying more than the minimum affect amortization?
Yes, paying more than the minimum affects the amortization of your loan, especially when you direct the extra money toward the loan principal. Reducing the principal means you’ll pay less in interest and typically pay off the loan faster.
How does refinancing impact my amortization schedule?
Refinancing affects your student loan amortization schedule because when you refinance, you get a new loan with new rates and terms and a new amortization schedule. If you qualify for a lower interest rate, you could save money in interest and on the cost of the loan overall. You could also choose to shorten or lengthen your loan term. Just be aware that lengthening your loan means you’ll pay more in interest over the life of the loan.
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