There are plenty of questions about student loans, and plenty more questions about how to pay them off. So we’ve gathered the most common questions people ask about student loan repayment plans and put it into an FAQ list.
What is a standard student loan repayment plan?
A standard student loan repayment plan is the default plan for federal student loans. According to this plan, it calculates your monthly payments to ensure that all your loans are paid off within 10 years. All federal student loan applicants are eligible for this plan.
What are the other popular student loan repayment plans that are available to federal borrowers?
Three of the most popular student loan repayment plans that are available to federal borrowers include the Graduated Repayment Plan, Extended Repayment Plan, and Revised Pay As You Earn (REPAYE) Plan.
How does the Graduated Repayment Plan work?
With the graduated repayment plan, you pay lower monthly payments at the beginning. The monthly payments increase every two years until you finish paying off the loan. The plan calculates payments in such a way that you pay off your loans within 10 years. All federal student loan applicants are eligible for this plan.
What are the pros and cons of the Graduated Repayment Plan?
When you just start working, you are likely to be earning a lower income. Your earnings should keep increasing as you gain more experience. The graduated repayment plan will help make it easier for you to make your monthly payments without the risk of default.
The downside of this plan is that the interest accrued over the life of the loan is much higher than the 10-year standard plan.
How does the Extended Repayment Plan work?
With the extended repayment plan, the monthly payments may be fixed or graduated. The plan calculates the amount to ensure that you pay off your loans within 25 years. Only borrowers who have more than $30,000 in outstanding Direct Loans are eligible to choose this plan.
What are the pros and cons of the Extended Repayment Plan?
The extended repayment plan lowers your monthly payment by extending the life of the loan to 25 years instead of the standard 10-year plan. The lower monthly payment can be especially helpful if you are struggling financially.
The snag is that you pay more by way of accrued interest over the life of the loan as compared to the 10-year standard plan.
How does the Revised Pay As You Earn Repayment Plan (REPAYE) Work?
With the Revised Pay As You Earn repayment plan, you pay 10% of your discretionary income as monthly payments. The monthly payments are recalculated every year and are based on your updated earnings and family size. Only Direct Loan borrowers with specific types of loans are eligible for this plan.
What are the pros and cons of the REPAYE Plan?
The REPAYE plan is particularly beneficial to borrowers who are eligible for Public Service Loan Forgiveness. This is because any outstanding balance on your loan will be forgiven if you have paid back your loan in full after 20 years.
The downside is that you may have to pay income tax on the forgiven amount. You have to plan it carefully so you do not end up paying more than what you would with the 10-year standard plan.
What repayment plans are available for private student loans?
Private student loans are not standardized. The loan repayment plans and the interest rates of interest vary widely from one lender to another.
Can I change my repayment schedule for private student loans?
Private student loans do not offer as much flexibility as federal student loans. Before borrowing from any private lender, it is crucial to find out about repayment schedules and the terms and conditions that apply.
Is there any way to lower the interest rates on my student loans?
Typically, the only way to lower student loan interest rates is by refinancing your loan with a private lender. However, while this is easy to do and will help ease your monthly financial commitment, you should know that when you refinance your loan with a private lender, it is no longer a federal loan. This means you will lose your eligibility to apply for income-based repayment plans, public service loan forgiveness, or other options that are available to federal borrowers.
What is deferment?
Deferment is a period of time during which your monthly payments may be temporarily postponed. Deferments are only granted under very specific circumstances. You may avail of this option if you are serving in the military or performing other public services, unemployed, going back to school at least half time, or struggling to make your monthly payments for some other reason.
What is forbearance?
Forbearance is a period of time during which your lender agrees to postpone or reduce your payments temporarily to help you tide over your short-term financial difficulties.
What is the difference between deferment and forbearance?
With deferment, the interest on the loan does not accrue during the period that the loan has been postponed.
With forbearance, although the monthly payments are reduced or postponed, the interest on the loan will keep accruing during that period. If you do not make interest payments during the period of forbearance, you will end up paying much more over the life of the loan.
Is it a good idea to consolidate my loans?
If you have more than one federal student loan you can consolidate them into a single loan so that you only have to keep track of one monthly payment. This helps simplify your monthly repayments and minimizes the risk of default. It may also give you access to alternative repayment plans with lower monthly payments and maybe an extended loan term.
However, the terms may vary widely from one lender to another. You must take time to understand the terms and conditions before you decide to consolidate your loan.
Can I consolidate my private student loans with my federal student loans?
No, private student loans cannot be consolidated with federal student loans. This is because federal consolidation loans have a much lower rate of interest.
Can I get forgiveness for private student loans?
Private student loans are generally not eligible for forgiveness. Only federal student loans are eligible for forgiveness.
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