Although there is a plethora of options for repaying student loans, the most common are standard repayment, and income-driven repayment plans.
Your decision on which plan to get should depend on what your long-term goals are:
- Paying the least amount of interest: standard plan
- Lowest possible payments: income-driven plan
- Qualifying for student loan forgiveness: income-driven plan
Graduated and extended student loan repayment plans can also help lower your payments without relying on income. These plans do offer less benefits than income-driven plans, they can provide more predictable payments.
Paying Less Interest
The best repayment option for acquiring the least amount of interest would be a standard repayment plan. With this plan, consistent monthly payments are made for 10 years. These plans will allow you to pay off your loans faster than other programs, resulting in less interest for yourself.
You will automatically be entered into the standard repayment plan once you commence repayment.
Lower Monthly Payments
If you’re trying to make the smallest monthly payments possible, then an income-driven repayment plan is probably your best bet.
There are four different income-driven repayment options available through the United States government. They are:
- Income-based
- Income-contingent
- PAYE, or Pay As You Earn
- REPAYE, or Revised Pay As You Earn
If you are unable to afford the payments for the standard plan, then an income-driven repayment plan could be the next best choice. The monthly payment for income-driven plans is based on your discretionary income. The value usually falls between 10% – 20%. The duration of these plans is usually 20 – 25 years. Any remaining money at the end of your term will be forgiven, but you will be required to pay taxes on the amount forgiven.
A general rule of thumb is that any financial plan that reduces your monthly payments will usually cost more in the long run.
You can enroll in these repayment plans through your loan provider, or by visiting studentloans.gov.
Qualifying for Student Loan Forgiveness
Student Loan Forgiveness is another federal income-driven repayment plan for eligible government and nonprofit workers. After 120 income-driven loan payments, those who qualify may be entitled to having the remained of their loan balance forgiven.
This option really only works with an income-driven repayment plan as your loan would be paid off before forgiveness can go into effect with a standard plan.
I Have Private Student Loans. What are my Options?
You won’t be eligible for an income-driven plan if your student loans were issued by a private company. The best thing to do would be to contact your lender to discuss possible options. Many private lenders offer refinance options for student loans. Call your lender and ask if you could benefit from a refinance.
Source: https://www.nerdwallet.com/blog/loans/student-loans/student-loan-repayment-plans/
