Are large student debt’s crushing you financial and emotionally? Does it seem impossible to make ends meet while making monthly payments? Unfortunately, you’re not alone. An excess of 45 million Americans owe money on student loans, but even worse, more than 10% of them leave school and default, so they end up with debt and no degree to pay it off with. [1]
Fortunately, there are steps to take so that you better manage and ultimately repay your student loans. Here’s what you can do.
Income-Driven Repayment Plan
If you have a federal student loan, you’re automatically a part of the Standard Repayment plan after leaving or graduating from college. [2] Thanks to this plan, you end up with a fixed monthly payment that spans a period of ten years. With this approach, you can repay you’re supposed to repay your loans very quickly with low interest, but the payments can be very large.
Luckily, you have more options at your disposal that are based on your income, including:
-Income-Contingent Repayment
-Income-Based Repayment
-Pay as You Earn
-Revised Pay as You Earn
With these plans, you can extend repayment terms up to 20 or 25 years while having a capped monthly payment that’s calculated as a percentage of your income. Things like your salary, remaining loan balance, and family size can lower your payments drastically in comparison to the standard plan, and as these circumstances change, payments are adjusted.
Remember: Income-based repayment comes with lower monthly payment but at a much higher interest rate when you factor in how long you will be paying.
Graduated Repayment Plan
Those earning too much to apply for an income-based repayment plan might be eligible for the graduated repayment plan. [3]
Using this system, monthly payments start low then rise every other year, and the plan lasts ten years. Although this can provide some breathing room at first, it can also overwhelm you financially in a couple of years. Moreover, the interest paid with this plan is higher than a traditional plan.
Extended Repayment Plan
Anyone with more than $30,000 in federal student loans could be eligible for an extended repayment plan. [4] With this plan, there’s the choice between fixed and graduated payments over a period of up to 25 years.
When using an extended repayment plan, monthly payments are often lower than with a standard or graduated repayment plan due to the longer term.
Like other repayment options, the extended plan will end up costing you much more than the standard repayment because of interest.
Consolidate Your Loans
We recommend that you first consolidate if you have multiple federal student loans with different terms. By consolidating your student loans, you borrow enough money to pay for all the separate loans and then make a single monthly payment with the same rate of interest and other terms. The average interest rates on all your previous loans will determine the interest rate for your consolidated loan, but you might sometimes even get a lower rate. But, before making such an important decision, you should consider everything carefully.
[1] https://hechingerreport.org/the-new-low-income-big-borrower-of-student-loans/
[2] https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven
[3] https://studentaid.ed.gov/sa/repay-loans/understand/plans/graduated
[4] https://studentaid.ed.gov/sa/repay-loans/understand/plans/extended