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Student Loans

Student Loan Repayment Options

Navigating Your Student Loan Repayment

You’re done with school and found your first job and can’t wait to get that first pay check. Unfortunately you had to take out student loans to help you pay for school and now you have to start repaying them. If you haven’t already looked into your repayment options, now is the time. A better time would have been before you signed on the dotted line for the loans but here you are.

Private Student Loans

The two main types of student loans are private student loan and federal student loans. Private loan are loans given to you from a financial institution such as a bank or a private lender. They typically have a set repayment term such as 10 year or 15 year repayment similar to a car loan or mortgage. You can find interest rates that are variable or fixed and are set by the lender. There are a lot of downsides to private loans such as limited repayment options, limited consolidation options and no student loan forgiveness. If you’ve already taken out private loans then then it is best to know what your repayment terms are and buckle up to get them re-payed. If you’re looking at your options try to get as much as you can from federal loans first before looking into private loans.

Federal Student Loans

Federal student loans are loans that are granted by the U.S. Department of Education and have a variety of options for repayment. My previous post about my personal student loan repayment goals shows a chart of all the repayment options. Each one has it’s own benefits and drawbacks, knowing what these are can help you determine what option is the best for you. One benefit might be to limit the amount of your monthly payments, this however usually extends how long you’d be making payments. The longer you make payments the more interest you end up paying and overall the total amount you end up paying is much greater. If you have federal student loans you can log into studentloans.gov to see your personal repayment options.

Standard

The standard repayment plan is a fixed amount of 120 monthly payments set for up to 10 years. With this plan your payments are set and you will pay the least total amount over the years, however your monthly payment will probably be the highest. If you’re struggling to make your monthly payments one of the income based repayment plans might be an option for you.

Graduated

The graduated repayment plan starts out at a low amount and increases every 2 years over the course of the 10 years of repayment. Similar to the standard plan there are 120 payments. The advantage of this plan is that when you start off working you might have a lower salary, as your salary increases your student loan payments increase. The disadvantage to this is that you’re paying less of the principal early on so you’ll have more interest to pay. At the end of the 10 years you would have payed more total compared to the standard repayment plan.

Extended Fixed

The extended fixed repayment plan is similar to the standard repayment plan but it is extended over 25 years instead of the 10 years on the standard plan. Payments will be the same over 300 monthly payments. The benefit is that your monthly payments will be less, however because you’re paying interest on the money for a longer period of time the total amount paid is greater.

Extended Graduated

Similar to the extended fixed repayment plan the extended graduated plan is an extended version of the graduated plan; instead of the 10 year repayment on the graduated plan the extended graduated plan is spread out over 25 years. To be eligible for this you must have over $30,000 in outstanding loans. This plan will decrease your monthly payments over the course of the repayment period but because you’ll be making the payments for so much longer the total amount payed will be much greater.

Revised Pay As You Earn (REPAYE)

This plan is one of the options for income driven repayment. You’ll have to submit paperwork annually to qualify for this. The monthly payment is generally capped at 10% of your discretionary income and after payments for 20 years for undergraduate loans or 25 years  for graduate loans the remaining amount is forgiven. Depending on what your income is this could potentially decrease the amount you’re paying on a monthly basis but could increase the total amount you would pay. The nice thing with this plan is that you’ll always be only paying 10% of what your income is.

Pay As You Earn (PAYE)

This repayment plan is similar to the REPAYE plan but it is for new borrowers and you must meet certain eligibility requirements. You would qualify as a new borrower if you received a Direct Loan after October 1, 2007 and you would have needed to have a disbursement after October 1, 2011. The monthly payments are capped at 10% of your income so it varies based on your income level. After 20 years of payments the remaining balance is forgiven.

Income-Based Repayment (IBR)

For the income based repayment plan you monthly payments are calculated based on 15% of you income. Like the PAYE plan you must qualify for this plan by having a partial financial hardship which means your calculated payment under IBR is less that what you would pay under the standard repayment plan. After 25 years of payments any remaining balanced under this plan is forgiven. The benefit of this plan is that it can lower your monthly payments compared to the standard payment, but like the other income based plans it extends your years of paying your loans so the the total amount you end up paying is much greater.

IBR for New Borrowers

Income-Based repayment for new borrowers is basically the same as the IBR plan however instead of 15% of your income payments are capped at 10% of your income. You are considered a new borrower if received your loans and did not have outstanding balance on previous loans on or after July 1, 2014. Any remaining balance after 20 years is forgiven.

Income-Contingent Repayment (ICR)

The income-contingent repayment plan is another income based repayment plan. For this plan your payment will be the lesser of what you pay on a 12-year standard repayment or 20% of your discretionary income. If you have any remaining balance after 25 years the remaining balance is forgiven.

There is also an option to have some of your student loans forgiven if you qualify for public service loan forgiveness which would forgive your loans after 10 years if you work for a qualifying organization. Depending on what your income levels are and your individual situation you’ll have to decide what plan is best for you. For more help with deciding  what the best repayment plan for you is, visit https://studentaid.ed.gov/sa/repay-loans/understand/plans.