Taking out student loans is the easy part, relatively speaking. It’s paying them back that’s tricky. I know when I first started my repayment, I barely knew what all the terms meant, let alone that there were several repayment options available to choose from. So what are the available student loan repayment plans, and which is the best one for you?
What Kind of Loan Do You Have?
If you have a private student loan through a bank, then you are a little more limited when it comes to repayment options. There are options out there, though. These include paying down the interest while you are in school which will help keep your principle down, deferring your payments to give yourself some time to become financially stable, and adjusting the term of your loan to give yourself more time to pay it off.
If you have a federal student loan through a servicer like Sallie Mae or Navient, you have a few more repayment options available to you.
What Are My Options?
Federal student loans come with a lot of different repayment plans, though generally everyone starts out with a pre-assigned ten year plan. That’s not necessarily the best choice for everyone, though. Luckily, you can contact your loan provider at any time and ask about some of these other choices, which might help!
- Standard Repayment Plan. This plan is the basic plan that everyone starts out with. Payments have to be at least $50 per month, anything lower isn’t accepted. Generally, the payments are higher, depending on the number of loans you have, and what the monthly payment is for each. Once your grace period ends, you’ll pay once a month for up to 10 years with this plan. This plan also offers the added bonus of a shorter overall term than many of the other plans offer, meaning less interest build up. This is the go-to plan to save money on interest in the long run, but your payments may be higher than with any of the other plans.
- Graduated Repayment Plan. This plan is great for those who need a little more time to figure out a game plan once it’s time to enter repayment. The payments start at a lower amount and gradually increase, usually every two years. Like the Standard Repayment Plan, this can go on for up to 10 years, but you will end up paying more than you would with that plan. Lower payments means higher interest build up in the long run.
- Extended Repayment Plan. This plan basically just buys you more time. Instead of a 10-year plan, this one operates on a 25-year schedule. That means your monthly payments will be lower overall, whether they are fixed or gradually increasing. In order to take advantage of this plan, though, there are some certain qualifications you have to meet, namely a higher than average amount of loans. With Direct Loans and FFEL (Federal Family Education Loans), you have to have borrowed over $30,000, and that can’t be combined amounts, either. It has to be $30,000 in either Direct Loans or (not and) FFEL in order to qualify for this plan. Just as with the Graduated Repayment Plan, lower payments plus a longer term means you’ll end up paying more in the long run due to interest.
- Income Flexible Plans. There are a few different plans available for those going through financial hardships, but all of them require proof of financial difficulty. Since each of these plans offers a longer repayment term or lower payments, you’ll end up paying more over time than you would with a standard 10-year plan. Contact your loan provider to find out what they require to approve you for these plans.
- Income Based Repayment Plan. With this plan, the the most you would be asked to pay is 15% of your discretionary income (your adjusted gross income – poverty guidelines for your state= discretionary income). As you make more, you pay more, so the amount changes as you go for up to 25 years. If it’s still not completely paid off after the 25-year term ends, then the remaining balance will be forgiven, though you may have to pay some income tax on it.
- Pay As You Earn Repayment Plan. With a maximum payment of 10% of discretionary income, this plan allows up to 20 years for repayment before loan forgiveness, but only if you received your loans on or after October 1, 2011.
- Income-Contingent Repayment Plan. With this plan, your income is taken into account each year, and the amount of your payments changes based on your income, the size of your family, and the amount of your loans. This is a 25-year plan. If, after 25 years of consistent monthly payments, the loan is not paid in full, the remaining balance will be forgiven, but as with the Income Based Repayment Plan, you may have to pay tax on it.
- Income-Sensitive Repayment Plan. This plan calculates your monthly payments based on your annual income. The more you make, the more you pay. This plan, unlike the other income determined plans, is a 10-year plan, but due to the decreased payments, you will still end up paying more than you would with a standard plan.
- Deferment and Forbearance. If you aren’t capable of making any form of payment, no matter how small, looking into these options. They allow you to push back payments for a while, giving you time to figure out a game plan and move forward.
Look at your finances, and talk to your loan provider about which option might be best for you! Try our Loan Finder if you are looking for a private student loan to supplement your federal student loan.
About the author
Trinya’s passion for helping others understand student loans started when she began learning all she could to fill in what she didn’t know about her own loans. She enjoys speaking at local schools about the cost of college and assisting friends with their finances. In her free time, Trinya also enjoys reading, writing, and playing music.