Repayment plans for student loans are something the majority of graduates struggle with. Most undergraduate students spend nearly 20 years paying off student loans, or closer to 40 years for graduate students. In order to avoid falling into debt because of your student loans, you must be able to budget and create a financial plan to keep up with your payments.
Your student loans payment plan will vary based on a number of factors, including how much you owe, when you are required to start making payments and your interest rates.
If you are struggling with student loan repayment options, there are several methods you can use to reduce your payments. Some of the top options include refinancing or consolidating your loans. Student loan forgiveness may also be an option, based largely on your profession after you graduate. Federal loan repayment plans have several additional methods to help struggling students as well.
Student loan refinance is available for both federal and private loans. However, only private student loan refinance lenders exist, there are no federal options. Student loan refinance is sometimes incorrectly referred to as consolidation. While consolidation is another method to deal with student loans, it is not the same as refinancing.
Refinancing student loans is an option if you have multiple loans. When you refinance your loans, you take each of the loans and combine them into a new, single loan. Instead of dealing with multiple interest rates from loans, you now have all your debt rolled into a single source. With your new student loan refinance rates, you end up having an easier time budging, since you do not have to worry about juggling multiple payment plans. Having a singular payment also decreases your chances of missing a payment and getting penalized due to interest rates and other fees.
When you get a student loan refinance quote, you can also renegotiate your payment terms. You can refinance private student loans so you have an extended plan, giving you an additional 15 or 20 years to repay your loan. While this may ease some of the pressure off your initial payments, keep in mind you will end up paying much more over time due to interest rates.
Another one of the best student refinance benefits is the ability to get a fixed interest rate. This is less of a benefit if you mostly have federal loans, as the majority of those loans already have fixed interest rates. With fixed interest rates, you have more stability with your loan and do not have to suddenly worry about owing more in the future due to variable interest rates increasing.
Finding the best student loan refinance companies can be challenging. As with any lender, you must be willing to check multiple sources. To get the best student loan refinance rates, you need a good credit history. The majority of lenders will allow someone with a better credit history to cosign your loans. If you are refinancing your federal loans, keep in mind your loan will now be classified as private. This means you lose any benefits associated with your federal loans. When you refinance loans, you can choose which of your loans to refinance, allowing you to exclude your federal loans to keep receiving their benefits.
Unlike student loan refinance options, consolidation is only available for federal loans. With federal loan consolidation, you take all of your federal loans and roll them into a new loan. With consolidation, your new interest rate is factored by combining the weighted average of all the loans you are consolidating, rounded to the nearest 1/8th percent. Because of this, you may end up with a higher interest rate on your overall loan. However, you are still consolidating all your payments into a single loan, making it easier to budget for. As with student loan refinancing, you can also opt for a longer payment plan after consolidating your loan.
Another student loan relief option is to apply for an income-based repayment plan. These repayment plans for student loans are only available for federal plans. With an income-based repayment plan, your monthly payments are determined by your total income each month and the size of your family.
As of writing, there are four different plans to choose from, REPAYE, PAYE, IBR and ICR. When looking at these federal student loan repayment options, you must pay attention to the percentage calculations. For example, REPAYE is based on 10 percent of your discretionary income, while IBR uses 15 percent if you borrowed after July 1st 2014, but you must have less than a 10-year standard repayment plan.
These types of repayment plans for federal student loans are more complex than refinancing or consolidation, but can lead to much greater savings. In some cases, you may end up paying $0 each month until your total income increases. Income based plans are especially helpful if you recently lost your job and need some time to financially recover without being dragged down by your student debt.
Federal student loan forgiveness allows you to cancel a portion of your remaining student loan. It is not available for private loans. Forgiveness is one of the rarer student loan relief services because it requires you to meet specific criteria. There are several potential types of loan forgiveness. You can get US student loan relief if you are a teacher who agrees to work in a school that services low-income families. You must work in a qualifying school for at least five consecutive years and may forgive up to a total of $17,500 as of writing.
Public service loan forgiveness (PSLF) is another option. PSLF is available if you work in either a government or non-profit group. PSLF has much longer requirements than teacher forgiveness, requiring you to work for 10 years to get your student loans forgiven. There are additional loan forgiveness options available for military veterans as well as AmeriCorps members. Some of the top forgiveness programs for military members include the Department of Defense student loan repayment and Servicemembers Civil Relief Act.