There are several options available to you when you begin repaying your student loans. Federal student loans are much flexible; private student loans tend to be much more limited.
The best way to pay back your loans will depend on:
- The types of student loans you have,
- How much you owe, and
- Where you financially stand after you graduate.
However, even though there are various student loan repayment options, the best plan for you will likely be an income-driven repayment or standard repayment plan, depending on your goals. You can also decrease your payments with graduated and extended loan repayment plans. And it doesn’t rely on your income.
These plans provide small benefits compared to the IDR plan. But they may be logical if you earn a significant amount of money or want predictable payment amounts.
We will explore your current choices in this guide.
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Closed School Discharge
If your college or university closed during or after your studies, you are entitled to a discharge. Students who have studied in places like Kaplan, Great Lakes, Everest College, and many other universities or colleges have the option of eliminating their student debt and may be entitled to a refund.
Choose Standard Repayment If You Want Less Interest
Do you want to pay less interest? If so, the best repayment option would be a standard repayment plan. On this repayment plan, you make equal payments every month for ten years.
If you can manage the standard repayment plan, you can reduce the interest. That can help you pay your loans quicker than you would on other federal repayment plans. If you want to enlist in this plan, all you need to do is enroll in repayment, and you would be automatically placed in the standard plan.
Income-Driven Repayment Is Suitable For Lower Student Loan Payments
The federal government offers four IDR plans: REPAYE, PAYE, IBR plan, and ICR plan. We recommend these options if your monthly income is so low to afford the standard repayment.
If you’re not employed or underemployed, your payments every month can be $0 and can change every year.
With IDR, you can extend your student loan term to 20 or 25 years. If you complete that term, the federal government will forgive any remaining loan balance. However, you’ll pay taxes for the amount forgiven.
But before you change your repayment plans, put your information into the U.S. Department of Education’s Loan Simulator. That will help you know what you’ll owe for each plan. Any option that lowers your monthly payments will likely end in you paying more interest.
How To Apply For The Income-Driven Repayment Plan
If you want to apply for income-driven repayment, contact your student loan servicer or visit studentaid.gov. You can select the plan you want or choose the repayment plan with the lowest payment.
In most cases, it’s best to take the lowest payment. However, you may want to analyze your alternatives if your tax filing status is married filing together.
Income-Driven Repayment Is Ideal If You Qualify For Loan Forgiveness
A federal program called the Public Service Loan Forgiveness (PSLF) is available to government and particular non-profit employees. If you qualify, the federal government could forgive your remaining student loan balance tax-free after making 120 qualifying loan payments.
You can qualify for PSLF if only your payments are under an IDR plan or standard repayment plan. If you want to benefit from the program, you need to ensure you make the 120 payments on an income-driven plan.
With the standard repayment plan, you would clear off the student loan before it’s eligible for loan forgiveness. You can enroll in the IDR plan with your servicer or studentaid.gov.
Private Student Loans Repayment Options
Private student loans usually have fewer repayment options. These are:
With this option, repay only the interest on your student loans while in school. You then start the principal and interest payments when you graduate or fall below half-time enrollment.
You start paying the principal plus the interest right after your student loan is disbursed.
With this option, you make no payments while in school. You start making principal and interest payments within a specific period after you leave school.
You may qualify for forbearance or deferment depending on your loan services if you can’t maintain your regular loan payments. However, these options usually require economic hardship, and not every loan lender offers these options.
If you have private student loans, we recommend you check to see the cost of the various repayment options in interest over the loan life.
Refinance Your Private Student Loans
You can also consider refinancing your private student loans if you can get a lower interest rate. With a low interest rate, you can save money on interest during your repayment. Refinancing relies heavily on credit scores, so if you don’t have a good credit score, you may need a cosigner with good credit.
Lastly, if you’re struggling to make payments, quickly contact your loan servicer and see what they can do about it.
If you have student debts, take considerable time to go over your repayment options. Ideally, it would be best if you did this before you graduate to know which repayment plan to go with. If you’re facing challenges, we advise you get a financial expert’s opinion before you make a decision.