College aid direct blog - Today's repayment options
1/1/2023 repayment options. The programs are subject to chnage.
Are you confused by your student loan repayment options?
It can be confusing. You may have loans at many different Servicers or Lenders. Knowledge is power. The first step is to identify what type of loans you have and where they are located. It is important to know the balance, interest rate, loan term, and location of the loan.
Let’s find out how:
Determine What Type of Student Loans You Have
The first step is to determine what type of student loans you have. Once you know what loans you have, you can assess your best options to lower your payments and find out how much faster you’ll be able to pay off your student debt.
Federal Student Loans
These are loans directly from the federal government. These loans have names like Direct, Stafford, Subsidized and Unsubsidized, Perkins, PLUS and Consolidation.
If you aren’t sure if you have these types of loans, the government has a site where you can check for free here.
Private Student Loans
These are student loans from banks, credit unions and some states. These loans are typically used after exhausting the federal loan limits. Most private student loans do not have an origination fee like the federal loans and may have a lower interest rate, dependent on the credit score and history of the applicants.
If you aren’t sure if you have these types of loans, you can find out by checking your credit report for free here.
What are the Different Student Loan Repayment Options?
Federal Student Loan Program (only)
The programs are subject to change. You can check the current plans at:
https://studentaid.gov/manage-loans/repayment/plans
Standard Repayment – Payments are the same amount each month for ten years (up to 30 years with a federal consolidated loan).
Graduated Repayment – Monthly payments start lower and increase every two years with full payment in ten years up to 30 years with a federal consolidated loan).
Extended Repayment – Loan amounts must be more than $30,000 and borrowers need to meet certain qualifications but they payments could be the same each month or graduate and the loan must be paid within 25 years.
Revised Pay As You Earn (REPAYE) – Monthly payments will be 10% of discretionary income and the balances will be forgiven after 20 years (undergraduate) or 25 years (graduate). Amounts “forgiven” may be taxable. Income and Family size will be reviewed each year, regardless of changes.
Income-Based Repayment Plan (IBR) – Debt must be high in comparison to income. Payments each month will be 10% or 15% of discretionary income (based on when the loans were disbursed). Payment amount will be recalculated each year based on income and family size. Amounts still owed at the end of the 20- or 25-years repayment schedule will be forgiven. Amounts “forgiven” may be taxable.
Income-Contingent Repayment Plan (ICR) - Payments each month will be the lower of two options. Either 20% of discretionary income or the amount of your payment with a fixed payment if the repayment schedule was 12 years. Payment amount will be recalculated each year based on your income and family size. Amounts still owed at the end of the 25-year repayment schedule will be forgiven. Amounts “forgiven” may be taxable.
Private Student Loan Repayment Options
Most Private Lenders offer flexible repayment options (immediate repayment, Interest Only, Partial Interest and full deferment) while a student is in school but require fixed monthly payments after graduation. Students typically choose a monthly payment and term (number of years to repay) during the acceptance of the Private Student Loan. Contact your Private Student Loan provider to determine if there are other repayment options available, other than refinance.
Payment management.
There are a few ways to reduce your monthly payment. Be advised if you lower your payment for a longer term, you may pay more in interest over the life of the loan. Do not be lured into a new loan on just a lower payment. Check out the term and total interest paid over the life of the loan. If you are having a hard time making ends meet, the lower payment may be an option to balance your budget.
Consolidate Your Loans
If you have multiple federal student loans, you can consolidate them into a single Direct Consolidation Loan. This may simplify repayment if you are currently making separate loan payments to different loan holders or servicers, as you'll only have one monthly payment to make. There may be tradeoffs, however, so you'll want to learn about the advantages and possible disadvantages of loan consolidation before you consolidate.
Refinancing is usually done with private loans, not federal loans. Refinancing is when you combine all your loans at one private lender. Here you can potentially reduce your interest rate and payment amount with a new loan. Many lenders now allow you to refinance private and federal loans into a private loan.
You do not need to refinance all your loans. You can refinance some of them or all of them. This is important if you think you may qualify for federal forgiveness. Some borrowers refinance all loans, some just their private loans since they are not eligible for forgiveness.
Tip to save money: If you can get a credit worthy cosigner to cosign your loan, you will usually get a better interest rate which reduces your payment and the overall amount of interest paid back. This can be a huge savings.
In many cases, you can refinance more than once. So, if rates drop in the future, you may be eligible to refinance again and take advantage of the lower rates.
There is not one solution for all borrowers. You should look at your situation and determine what is best for you.
