Repaying student loans can be a lot more complicated than just making a payment every month. There are 8 different plans you can choose from to repay your Federal Student Loans, 4 of which are based on your income level.
You’re not eligible for those plans if you have private student loans. Your lender may offer other flexible repayment options, or you can refinance your student loans to get a lower interest rate if you qualify.
Here’s what you should know about repayment plans:
The right federal student loan repayment plan for you depends on factors like:
– Family Size
Here’s how to sort through your plan options.
Income-driven plans set your monthly payment between 10% and 20% of your income and increase your loan term from the standard 10 years to 20 or 25 years. They also forgive any remaining loan balance at the end of that term, but you’ll have to pay income taxes on the amount that’s forgiven. Eventhough these plans typically give you a lower monthly payment than the standard plan does, you’ll end up paying more in interest.
There are 4 income-driven plans plus an income-sensitive plan that is available only to low-income borrowers with Federal Family Education Loans. The plan that’s best for you depends on when you first borrowed, your income and family size.
Basic repayment plans don’t depend on your income and include the standard, graduated and extended repayment plans. Unless you elect otherwise, you’ll be on the standard plan automatically; contact your loan servicer to switch to a graduated or extended plan.
Though the graduated and extended plans typically aren’t the best options compared with the income-driven plans, they can be right for some borrowers, especially those who don’t want to deal with reapplying for an income-driven plan every year, says Diane Cheng, associate research director at the Institute for College Access and Success.
Regardless of which repayment plan you’re on, you can always pay extra toward your Federal Student Loans. Tell your student loan servicer to apply the extra payment to your current balance instead of counting it toward your next monthly payment; that will help you pay off your debt faster.
Private student loans don’t qualify for federal income-driven repayment plans or forgiveness programs. If you’re struggling to repay your private student loans, call your lender and ask about your options. Some private lenders have loan modification programs, and others have repayment plans designed to mimic federal repayment plans.
If you have good credit — a credit score at least in the mid-600s — you may be eligible for student loan refinancing. That can save you money if you qualify for a lower interest rate. Dozens of lenders offer student loan refinancing; compare your options before you apply to make sure you get the lowest possible rate.
Repaying student loans can be a headache. If you need more help, reach out to your federal student loan servicer or private lender with questions. With persistence and planning, you can pay down your student debt — even if that feat seems insurmountable now.
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