Student Loan Repayment: Your Options
Figuring out how to manage your student loan debt is a struggle that many college graduates face. More than seven million borrowers default, and millions more Americans find themselves unable to afford even the minimum monthly payment.
Did you know there are options to help you pay off your student loans? While the burden of debt can feel overwhelming, we’ve decided to highlight some options in order to help you figure out how you can accelerate making sure your student loan debts are covered:
Federal Employee? Explore The Federal Student Loan Repayment Program
Commit To The Shortest Repayment Program You Can Manage
Federal student loans have four general repayment plans:
- The 10-Year Standard Repayment Plan, where you repay your college debt in equal installments starting six months after you’ve graduated or left school.
- The 10-Year Graduated Repayment Plan, where your payments start out very low and then increase every two years.
- The Extended Repayment Plan, where you stretch out your student loan payments for as long as 25 years, and you can make fixed or graduated payments.
- An Income-Related Repayment Plan, where you have a variety of loan repayment options, each of which has a payment term ranging anywhere from 10 to 25 years.
Evaluate Your Income-Based Repayment Plan
The Income Based Repayment plan is one of the older income driven repayment plans, which now has less benefits than the REPAYE and PAYE plans. It’s still a great payment plan option with some key benefits.
One of these benefits is forgiveness on the first three years of any unpaid interest from enrolment for the subsidized portion of your loan.
If you find yourself in a very low – or no – income spot, this could work out to be a form of forgiveness on your loans. Otherwise, interest will be due.
For example, someone with a loan amount of $40,000 and an interest rate of 6.8% would have $8,160 of interest forgiven in their first three years from when their Income-Based Repayment begins. This is assuming you qualify for a zero payment.
Another benefit of the Income-Based Repayment is that it typically offers the lowest payment for borrowers in financial hardship. The amount of your payment can never exceed 15% of your adjusted gross income over the poverty line for your family size.
To figure out where you may land for Income-Based Repayment, the Federal Student Aid website has all of the info you need.
Understand Pay As You Earn (PAYE)
Passed by President Obama in 2012, the Pay As You Earn plan was created to try and improve the Income Based Payment plan. PAYE caps your maximum payment at 10% of your discretionary income, and reduces the term required for forgiveness from 25 years (that Income Based Repayment uses) to 20 years.
Applying for PAYE does come with some restrictions. You must be a new borrower as of Oct 1, 2007 and you must have received a disbursement of a direct loan either on or after Oct 1, 2011. In addition to these requirements, your payment in the Pay As You Earn program must be less than what your standard ten-year payment would be.
Check Out The Revised Pay As You Earn (REPAYE)
REPAYE was created at the end of 2015 as an extension to PAYE. This new version was designed as a work around to the restrictions mentioned above. It also comes with some additional benefits.
The REPAYE plan caps your monthly payment at 10% of your discretionary income and provides forgiveness after 20 years of qualifying payments for undergraduate loans, and 25 years for graduate loans.
Benefits of REPAYE
- Capped payment at 10% of discretionary income
- Payments qualify for Public Service Loan Forgiveness
- Complete loan forgiveness after 20-25 years
- Interest Forgiveness for first 3 years, and half of the accruing interest after year 3
Qualifying Loan Types
- Federal Direct Loans
- Graduate Plus Loans
Important to note: If you are married, your spouse’s income will be calculated towards you REPAYE payment. This can actually result in a much higher payment than other plans which do not require you to declare your spouse’s income.
For more info on the Revised Pay As You Earn plan, visit this link.