With the average college graduate’s student loan debt surpassing $30,000, most college students will have to face this burden soon after they graduate. You likely have already started repaying your student loans, but may not know about the variety of repayment plans available based on your individual circumstances.
Standard Repayment Plan
Typically, your loan servicer will automatically put your loans on the standard repayment plan. Under this plan monthly payments are higher, however you will pay off your loan more quickly because you will be paying less in interest over the life of the loan. Monthly payments are a fixed amount of at least $50 for up to 10 years for all loan types, with the exception of Direct Consolidation loans.
Income-Driven Repayment Plans
The US Department of Education allows for three different income-based repayment options based on your income and ability to demonstrate “partial financial hardship.”
- Income Based Repayment (IBR) is either a 25-year payment plan requiring 15% of your discretionary income or a 20-year plan requiring 10% of your discretionary income.
- Pay As You Earn is a 20-year plan requiring 10% of your income. Both this option and IBR will never take more than the 10-year Standard Repayment Plan monthly amount.
- Income-Contingent Repayment requires the lesser of the following: 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
Refinancing your student loans is ideal to receive more competitive interest rate on your loan. Interest rates are at historic lows and refinancing allows you to optimize your repayment for your personal situation (i.e lower monthly payment or lower total repayment). Those who benefit most from refinancing usually have a minimum of a 640 FICO credit score and a debt to income ratio of around 45%, but there are a number of factors that can increase your likelihood of receiving a better offer. Credible allows you to fill out one form and receive offers from numerous lenders to determine which best fits your personal financial situation.
Deferment or Forbearance
If you’re in a tough financial situation, it may be possible to apply for student loan deferment or forbearance. These options will allow you to temporarily suspend or reduce your student loan payments. During a deferment, you do not need to make payments and your interest rate is suspended. Moreover, for some types of loans the Federal government may pay the interest accrued. If you do not qualify for deferment, you may be eligible for forbearance. If you’re granted forbearance, you can either stop making monthly payments or reduce them. However, interest is still accrued on your loan.
- Learn more about your deferment and forbearance options
Student Loan Forgiveness
Some graduates may be eligible to have their student loans forgiven. In order to qualify for the Student Loan Forgiveness plan you must meet certain requirements. With the federal program, you must make 120 on-time, full, monthly payments on your direct loans. Only payments after 1 October 2007 qualify. The payments must also be under a qualifying repayment plan. Other public service loan forgiveness programs are available on a state and federal level.
Stephen Dash is a member of the DailyWorth Connect program. Read more about the program here.