What Is the Monthly Payment on a $20,000 Student Loan? (2024)
Vance Cariaga
·3 min read
In a few weeks, federal student loan borrowers will start doing something they haven’t done in about three-and-a-half years: pay back their loans. The payment pause that went into effect in March 2020 in response to the COVID-19 pandemic officially ends in October 2023, which is when payments will resume for tens of millions of borrowers.
The resumption of payments will be especially tough on cash-strapped borrowers who were banking on the Biden loan forgiveness plan to cancel up to $20,000 in debt. That plan, announced in August 2022, was struck down by the U.S. Supreme Court earlier this summer after months of legal battles.
The bottom line for borrowers is that they will be gearing up to pay monthly budget items they haven’t had to think about in a long time. For those with $20,000 in student loan debt, that monthly payment could be substantial. It all depends on your interest rate and the length of the loan.
Interest rates on federal loans might range from less than 3% to more than 7%, according to the U.S. Department of Education’s Federal Student Aid website.
In its most recent update, Federal Student Aid said the fixed interest rate is 5.50% for direct subsidized and unsubsidized undergraduate loans first disbursed after July 1, 2023. That was up from 4.99% for loans first disbursed between July 1, 2022, and June 30, 2023. The rate for Direct PLUS Loans was 8.05% for loans first disbursed after July 1, 2023 — up from 7.54% for loans first disbursed between July 1, 2022, and June 30, 2023.
As previously reported by GOBankingRates, the average monthly payment on all student loans — including private loans — was estimated at $460 as of 2022, according to EducationData.org. The average borrower takes 20 years to repay their student loan debt and accrues $26,000 in interest over 20 years at the rounded average interest rate of 6%.
If you want to know the monthly payment on a $20,000 student loan, you can use an online loan calculator, which many states offer on their websites. Based on recent interest rates and repayment terms, here’s what a typical payment might look like:
$20,000 loan over 20 years at 5.50%
Total payment: $33,018
Total interest: $13,019
Monthly payment: $138
$20,000 loan over 20 years at 8.05%
Total payment $40,298
Total interest $20,299
Monthly payment $168
$20,000 loan over 20 years at 4.99%
Total payment: $31,651
Total interest: $11,651
Monthly payment: $132
$20,000 loan over 20 years at 6.0%
Total payment: $34,388
Total interest: $14,389
Monthly payment: $143
If those monthly payments look low compared to what most borrowers pay, it’s because most borrowers carry a lot more than $20,000 in student loan debt. As of March 2023, the average federal student loan debt in the United States was about $37,720, according to a BestColleges analysis of Education Department data.
For that amount, the payment on a 20-year loan at 6% interest would be $270 a month. For a 10-year loan, the monthly payment would be $419.
Kantrowitz found in his research that under a third of student loan borrowers who took out $20,000 or less were stressed by their debt, compared with over 60% of those who'd taken out $100,000 or more.
Borrowers who have reached 20 or 25 years (240 or 300 months) worth of eligible payments for IDR forgiveness will see their loans forgiven as they reach these milestones. ED will continue to discharge loans as borrowers reach the required number of months for forgiveness.
Research from EducationData.org shows that almost 45.3 million Americans hold an average federal student loan debt balance of $37,338. Combined, student loan debt in the U.S. adds up to nearly $2 trillion. According to the same data, the average student loan monthly payment is $503.
A $20,000 loan at 5% for 60 months (5 years) will cost you a total of $22,645.48, whereas the same loan at 3% will cost you $21,562.43. That's a savings of $1,083.05. That same wise shopper will look not only at the interest rate but also the length of the loan.
Generally, you'll need a good to excellent credit score — 670 or higher — to qualify for a $20,000 loan. The higher your credit score, the better your chances of qualifying for a loan and securing a lower interest rate.
However, when applying for a larger amount of $20,000 and up, you may need a higher score. A score of around 670 or more will increase your chances of being approved for a larger loan amount at the lowest rates available.
Higher education expert Mark Kantrowitz recently explained this good rule of thumb in an interview with CNBC News: “If your total student loan debt at graduation is less than your annual starting salary, you should be able to repay your loans in 10 years or less,” he said.
Regardless, one rule of thumb for student debt is that you should try not to borrow more than the first year salary you can expect in your chosen field.
Paying a little extra each month can reduce the interest you pay and reduce your total cost of your loan over time. Continue to make monthly payments even if you've satisfied future payments, and you'll pay off your loan faster.
Having a student loan will affect your credit score. Your student loan amount and payment history are a part of your credit report. Your credit reports—which impact your credit score—will contain information about your student loans, including: Amount that you owe on your loans.
If you have federal student loans and pay them off early, you could lose the opportunity to take advantage of a student loan forgiveness program (if you qualify).
Biden's new student loan forgiveness plan could erase up to $20,000 in interest for millions of borrowers. President Joe Biden's new plan to “cancel runaway interest” on student loans may reach as many as 25 million borrowers.
Income-Based Repayment (IBR)—Depending on when you first took out loans (before or on or after July 1, 2014), payments are generally 10% or 15% of the borrower's discretionary income, but never more than the 10-year Standard repayment plan amount. The remaining unpaid balance of loans is forgiven after 20 or 25 years.
Let's assume you owe $30,000, and your blended average interest rate is 6%. If you pay $333 a month, you'll be done in 10 years. But you can do better than that. According to our student loan calculator, you'd need to pay $913 per month to put those loans out of your life in three years.
The average student loan takes 21 years to pay off but that doesn't mean that it has to take you that long. If you want to get a better idea of what your monthly payment will look like then you can use our student loan calculator to figure out your monthly and total student loan payments.
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