Find The Best Plan For Your Student Loan Repayment Options
When it comes to repaying federal student loans, there are four options you can choose from.
Standard repayment plans: This type of plan is the most cost-effective option because they last for 10 years. Over time, these plans result in less interest paid.
Income-Driven Repayment (IDR): If payments are difficult to make each month, income-driven repayment (IDR) can be a big help. Payment amounts are linked to how much you earn and typically extend the loan term to 20 or 25 years. At the end of that period, any remaining balance on your debt is forgiven.
Graduated and Extended Repayment Plans: These plans are both designed to help borrowers manage their finances in the short term and repay their loans. With a Graduated Repayment Plan, your monthly payments are lower initially. But the payments gradually increase over time, usually every two years for a total of 10 years.
Extended Repayment Plan: This plan starts with low payments that increase every two years. You can choose a fixed repayment plan which will keep your payments split evenly over 25 years. You can also have an adjustable option where the payments will gradually increase as time passes.
The Department of Education has brought forth a new income-based repayment solution to reduce monthly payments and simplify loan forgiveness. While details are yet to be unveiled, the Loan Simulator from the Education Department can help borrowers compare their choices. They can also work out how much they will owe under each plan. While lower monthly payments may seem attractive, a longer repayment period could mean paying more interest in the end. It’s best to weigh your options carefully before making any decisions.
Do you want to pay less interest? Pick the standard payment plan (SPP)!
To manage your student loan debt most effectively, consider the standard 10-year repayment plan. This option allows you to make fixed monthly payments. Furthermore, it will reduce interest costs while helping you pay off your loans quicker than alternate federal repayment plans. Taking advantage of this plan can help save you money in the long run.
To sign up for this plan: You’re automatically placed in the standard plan when you enter repayment.
Do you want to have lower student loan payments? Choose the income-driven repayment (IDR)!
The federal government offers four plans for income-driven repayment (IDR):
- Income-Based Repayment
- Income-Contingent Repayment
- Pay As You Earn (PAYE)
- Revised Pay as You Earn (REPAYE)
These options are ideal for those whose income is too low to cover the standard repayment.
Income-driven plans provide great flexibility to borrowers struggling to make their monthly loan payments. These plans set your payment amount based on your income. It can be as low as 10% or as high as 20% of your discretionary income. If you are unemployed or underemployed, you may even qualify for a $0 payment. Payments may also change annually, depending on your income or family size.
Income-driven plans also extend the loan term. Undergraduate loans can extend up to 20 years and graduate debt up to 25 years (depending on the type of debt). At the end of this extended period, any remaining loan balance is forgiven. However, keep in mind that taxes must be paid on the forgiven amount.
To sign up for these plans: When applying for income-driven repayment, choose the specific plan that works best for you or opt for the lowest payment. Choosing the lowest payment is typically recommended. But, if your tax filing status is married filing jointly, then examine all your options before deciding. You can apply for income-driven repayment with your student loan servicer or at the government website, studentaid.gov.
Does your salary not fit the income-driven repayment? Select the graduated student loan repayment plan!
If you have a higher income than your debt, the graduated repayment plan may be an attractive option. With graduated repayment, the initial payments on your loan may be lower than with an income-driven plan. It will give you more flexibility to use that money for other goals such as saving up for a down payment on a home. This plan will also save you money in the long run by helping to reduce the amount of interest accruing on your loan.
However, it is important to keep in mind that payments will increase every two years until the loan is repaid in full within 10 years. This means that your payment could eventually triple in size. So, be sure to consider whether you can afford the larger future payments before choosing this plan. If you have the ability to make payments under the standard repayment plan, then that is usually your best option.
To sign up for these plans: Your repayment plan can be simply changed to graduated repayment by your student loan servicer.
Do you not want your payments tied to your income? Choose the extended student loan repayment plan!
The Extended Repayment plan allows borrowers to extend their repayment period to as long as 25 years if they owe at least $30,000. With this option, you can select either equal or graduated extended payments providing more clarity toward future payments. Unlike income-driven plans, which fluctuate annually based on salary, this plan does not have any loan forgiveness provisions. So, it is important to consider the full financial picture before deciding. If you are looking to lower monthly payments without taking advantage of loan forgiveness programs, this plan may be worth considering.
To sign up for these plans: Your repayment plan can be changed to extended repayment by your student loan servicer.
Do you want to pay off your loans faster?
Prepaying your student loan is an effective way to reduce your debt sooner than the standard monthly payments allow. By doing this, you can save on interest costs regardless of which repayment plan you are enrolled in. However, the biggest impact will be seen when paying off a loan under the standard repayment option. To ensure that your extra payment goes towards your principal balance instead of next month’s payment, be sure to inform your loan servicer.
Do you want to temporarily pause your payments?
If financial difficulties make your loan payments unmanageable, you may be eligible for deferment or forbearance. These options can temporarily postpone the repayment of your loans. This way you get some relief in the short term. However, remember that some loans may still accrue interest during deferment, while all loans accrue interest during forbearance. It will increase the amount you owe in the long run.
Income-driven repayment plans are an alternative option to consider if your struggles are related to pay. These plans can reduce your payments down to zero and still count toward loan forgiveness. This type of repayment structure is a great way to relieve the financial pressure of loan payments. Additionally, they help you work towards loan forgiveness down the line.
Do you qualify for Public Service Loan Forgiveness: Pick the income-driven repayment!
Public Service Loan Forgiveness (PSLF) is a federal program designed to help government and certain nonprofit employees pay off their student loans. Eligible borrowers can have their remaining loan balance forgiven tax-free after they make 120 qualifying payments. These payments must be made under either the standard repayment plan or an income-driven repayment plan to be eligible for PSLF. Keep in mind that most payments must be made on an income-driven plan to qualify. Under a standard repayment plan borrowers would typically pay off the loan before they are eligible for forgiveness. If you qualify, PSLF provides substantial relief by allowing you to get out of student loan debt sooner than expected. If you think you may be eligible, it’s wise to review the eligibility requirements and apply for certification as soon as possible. Doing so will help ensure that your payments are counting towards PSLF forgiveness.
To sign up for these plans: You can apply for income-driven repayment with your servicer or at studentaid.gov.
Do you have any private student loans?
If you are struggling to make payments on your private student loan, there are a few solutions you can consider. Contacting the lender directly may uncover special repayment options that temporarily lower your payments. Alternatively, refinancing could be an option. This involves taking out a new loan with more favorable terms and interest rates to pay off the existing loan. To be eligible, you will need a good credit score or an acceptable cosigner. So, it is important to carefully compare the available refinancing options before making any decisions. By refinancing your private student loans, you could potentially save thousands of dollars in interest and reduce your monthly payments.
What savings could you realize by refinancing?
When considering private loan refinancing, it is important to understand the associated risks. Refinancing your federal student loans can potentially save you money if you qualify for a lower interest rate. But it also means that you will lose out on any special benefits associated with the loan, such as income-driven repayment plans and loan forgiveness options. Before you commit to the refinancing process, research all your options and weigh the pros and cons carefully. Evaluate if giving up any benefits outweighs the potential savings from a lower interest rate so that you can make an informed decision.
