Better information leads to better student loan payment decisions
After completing “Pomp and Circumstances,” most college graduates have about six months to settle their financial lives before student loan repayments begin.
Instead of taking this time to explore their options, they nevertheless blatantly focus on what the loan provider offers, even though it puts a financial burden on them.
Paying off student loan debt
It is smarter to be proactive about paying off student loan debt than waiting and assuming.
Particularly study loans have a number of repayment options that make it easier to deal with debt. Learn more about these options, use a repayment estimate, and find the plan that best suits your unique financial situation:
- Standard repayment plan: This is the repayment plan that will be given to you if you do not make an alternative choice. Payments are set at a fixed amount, and you typically pay this amount up to 10 years – or up to 30 years for consolidation loans. If you feel you can afford this amount, this is usually the best approach as you know how much you will pay for how long. The total amount of principal and interest you will repay is usually less than the other options.
- Planned repayment plan: If your estimated income is initially smaller but you expect it to increase over time, this might be a better option.
Here your payment will be lower initially and then increased, usually every two years. Similar to the standard repayment plan, you will typically pay this amount up to 10 years or up to 30 years for consolidation loans.
Initial payments are lower
As your initial payments are lower, more interest is accrued, so the total amount you will pay over time will be higher than your standard plan.
- Extended repayment plan: If your loan amount is higher, or you don’t think your budget will receive a larger repayment amount, you might want to look at extending the repayment plan. Your payments may be fixed or graduated, but here the repayment period is extended to 25 years. In most cases, you must have more than USD 30,000 in student loan debt to qualify for this plan. Although your monthly payment might be lower, the total amount you will pay back will be higher again because you will be paying for a longer time.
- Revised Pay While You Earn Repayment Plan (REPAYE): This does not apply to consolidation loans. In this plan, your monthly payment will be limited to 10% of your discretionary income. This amount is recalculated every year, based on your current income and family size. Any outstanding credit balance is forgiven if your loan is not repaid in full after 20 or 25 years. Keep in mind that you may have to pay income tax on any amount of loans that are forgiven, but this might be a good option for those considering pursuing a Public Service Loan (PSLF). It keeps your pay lower while you work on what might be a lower-paying public interest job.
- Income Tax Repayment Plan (IBR): This is similar to the REPAYE plan except that it includes Consolidation Loans. If you are married, your spouse’s income or credit debt will only be considered if you file a joint tax return.
- ICR: This does not apply to consolidation loans. In this plan, your monthly payment is less than 20 percent of your discretionary income or the amount you would pay on a 12-year fixed-repayment plan adjusted to your income.
- Revenue sensitive repayment plan: Your monthly payment is based on annual revenue, but the formula used to determine the amount of the payment may vary with the number of lenders. The repayment period is up to 15 years.
Repayment plans may change at any time
Repayment plans may change at any time. It’s best to talk to your student repairers if you have questions.
The lessons learned by the college can also be great student loans for students who are about to go to college. Make smarter decisions about your financial aid package and may not have as many money problems later.