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Jun 18, 2020

Student Loan Repayment Options

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Graduating college and settling into your first post-graduate job is a huge milestone, but if you took out student loans, it also brings new financial responsibility. As you approach graduation, it is important to consider all of the options for repaying student loans to make the best repayment decisions. The thought of paying off student loans may seem daunting, but finding a repayment plan that works for your unique situation can help. Read on for information about paying back student loans.

Federal Loan Repayment Plan Options

The average graduate leaves college with $32,731 in student loan debt. While this number may be startling, there are a variety of student loan repayment options, depending on the type of loan, which can help lower your burden each month.

Perhaps the most common repayment plan is Standard Repayment Plan. Standard repayment is the method that your loan repayment will automatically default to unless you change it. With this option, you will pay a fixed amount each month for ten years, or until the loan is paid off. This repayment plan will cost you less in interest over the life of the loan compared to longer-term options. If you want to repay loans in ten years, but would rather your monthly payments increase with your number of years in the job force, the Graduated Repayment Plan is an option. Under this repayment plan, your payment amount changes throughout your repayment period. Your payments will start out lower, and typically increase every two years.

The Extended Repayment Plan has either standard or graduated monthly payments. On this repayment plan, loans are paid off within 25 years, meaning that your monthly burden will be lower, however, more interest will be paid over the life of the loan.

If you’re looking to start with a lower fixed monthly payment, payments on an Income-Driven Repayment Plan are re-calculated each year based on your discretionary income and family size. Under these repayment plans, monthly payments are typically lower than they would be with a Standard Repayment Plan but are paid off or forgiven after 20-25 years, depending on when you took out your loan. You will also accrue more interest over the life of your loans on this plan. If your loans are forgiven after 20-25 years, it is important to remember that you may still be required to pay income tax on the forgiven amount. Typically, Income-Driven Repayment Plans are most beneficial for graduates with a high debt-to-income ratio.

Private Student Loan Repayment Options

Paying back private student loans differs from the repayment plans offered for federal loans. Unlike federal student loans, private student loans have different features and are typically for students who need to borrow more than they receive from federal student loans.

Each private lender may have different repayment options. Sallie Mae®, one of the leading lenders of private student loans, offers a variety of repayment options while you are still in school. You can opt to make no loan payments while still in school with Deferred Repayment, choose to pay a fixed amount each month with Fixed Repayment or choose Interest Repayment where you pay interest each month.

Final Thoughts

Although thinking about paying off student loans can be overwhelming, there are plenty of options for repayment. It’s important to consider all of the repayment options to decide what best fits your unique situation.  

Contents of this blog article are intended to provide you with a general understanding of the subject matter. However, it is not intended to provide legal, accounting, or other professional advice and should not be relied on as such. Information may have changed since the publication date.

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