If you’re one of the 44 million U.S. borrowers with student debt, you know what a headache that loans can be. Fortunately, federal student loans have a silver lining: They come with a variety of student loan repayment plans.
If you need to lower your monthly payments, for instance, you can apply for an income-driven repayment (IDR) plan. If you want to get out of debt ahead of schedule, you can make extra payments without penalty. Although there’s no denying that student loans are stressful, this kind of flexibility in your student loan repayment options can help.
But how can you choose the best repayment plan for your wallet? Here are four tips for finding the right plan for your financial circumstances.
1. Learn about the different student loan repayment plans
Your first step in choosing the right plan is learning about all your student loan repayment options.
Federal student loans come with eight different plans. For this guide, we’ll group the five IDR plans, but you can follow the links to learn about each plan in full detail.
- Standard repayment: This plan spans 10 years. You’ll have the same fixed payments every month.
- Graduated repayment: This plan also gives you 10 years to pay off your debt, but with one key difference: Your monthly payments will start out small and increase every two years.
- Extended repayment: This plan lowers your monthly payments and extends your repayment term to up to 25 years. You can choose fixed payments, which stay the same every month, or graduated payments, which increase over time.
- Income-driven repayment: IDR plans cap your monthly payments at 10 to 20 percent of your discretionary income. They include:
Most of the income-driven plans end in loan forgiveness if you haven’t paid off your balance after 20 or 25 years.
If you don’t request an alternative plan, you’ll make payments on your federal loans under the standard 10-year repayment plan. But for some borrowers, the standard plan is too burdensome. For others, it’s not an aggressive enough approach for paying off debt.
Note that private student loans are different. They probably won’t come with flexible student loan repayment options, and they don’t qualify for federal plans such as IDR. Each lender sets its requirements, with most letting you choose a term between five and 20 years when you initially borrow, so you’ll want to shop around.
But if you’re struggling to keep up with payments, you’ll need to speak with your lender to see if you can choose a new term or postpone payments through forbearance.
Refinancing student loans could be another option if you’re looking to restructure your debt.
Since private lenders determine their student loan repayment options, you’ll need to call your lender or servicer to learn what’s available to you.
2. Determine how much you can pay each month
After learning about the different student loan repayment plans, it’s time to take a close look at your budget. Use a spreadsheet or download an expense-tracking app to get a clear picture of your monthly cash flow.
Based on your income and expenses, figure out how much you can afford to pay toward your student loans each month. Then, use a tool such as the Federal Student Aid Repayment Estimator to calculate your payments on different plans.
If you need to lower your payments …
If your student loan payments under the Standard Repayment Plan are dragging down your budget, apply for a different plan. Each has its own eligibility requirements, so factors such as your income, loan type, date of loan disbursement, and total debt might narrow down your options.
When considering changing your repayment plan, ask yourself these questions:
- Do I expect my income to rise over time? If so, you might opt for the graduated repayment plan. With this option, your payments will start low and gradually rise, but you’ll still pay off your debt in 10 years.
- Do I need long-term relief? If so, opt for the extended repayment plan or an IDR plan, both of which lengthen your repayment term to 20 or 25 years.
- Am I working toward Public Service Loan Forgiveness (PSLF)? If you’re working toward PSLF, an IDR plan such as IBR, PAYE, or REPAYE is a good option.
- Do I have Parent PLUS Loans? If you’re a parent borrower, your options for IDR plans are limited to ICR.
- Do I need to pause my student loan payments altogether as a result of losing my job or returning to school? If this is the case, consider student loan deferment or forbearance to avoid default.
The right plan will match your circumstances and make your monthly payments more manageable. But keep in mind that if you lower your monthly payments, you’ll likely pay more in interest in the long run.
Again, if you have private student loans and need relief, you’ll need to speak with your loan servicer. It might offer temporary forbearance in the case of economic hardship.
If you can pay more each month …
After taking a close look at your budget, you might reach the opposite conclusion: You can pay more each month and get out of debt even faster. If that’s the case, you can set up extra payments without penalty.
The Department of Education doesn’t penalize you for paying off your loans ahead of schedule, and most private lenders won’t either. You can set up recurring or one-time extra payments to pay off your debt faster.
3. Use a student loan calculator to understand interest
Once you’ve compared your budget with the various student loan repayment plans, do the math to see what each plan would look like for you. Not sure where to start? Student loan calculators can take the guesswork out of the process.
For example, let’s say you owe $30,000 in loans with a 5.70% rate. On the 10-year standard plan, you can expect to pay $329 a month for 10 years. Over the life of your loans, you’ll pay about $9,427 in interest.
But if you can pay just $50 more a month, you’ll save about $1,700 in overall interest and get out of debt 1.8 years ahead of schedule. If you can ramp up your payments to $500 a month, you’ll save over $4,000 in interest and get out of debt about four years early.
By revealing your total savings, these calculators can motivate you to pay off your loans faster.
But calculators will also show you what happens if you lower your monthly payments. This IBR calculator, for example, gives a bird’s-eye view of your loans. It even takes annual salary raises into account.
Student loan calculators reveal the relationship between your monthly payments and the interest you pay over the long run. By crunching the numbers, you can see how your actions now will affect your finances in the future.
4. Change your plan or refinance if your circumstances change
There’s no one-size-fits-all approach when it comes to repaying student loans. The plan you choose might be different from someone else’s. Plus, your approach as a new grad might look different than it does in your 30s or 40s.
If your bills are overwhelming, an IDR plan could be exactly what you need to lower your monthly payments and avoid default. But if you start making more money with a high-paying job or a side hustle, you could ramp up your student loan payments to get out of debt faster.
Once your finances are in good shape, you could even refinance your loans under new terms. When you refinance, you turn over one or more of your student loans to a new, private lender. You could refinance one loan or combine multiple ones. Ideally, you’ll get a lower interest rate when you do so.
Plus, you could choose new terms, perhaps lowering your monthly payments or accelerating your payoff date. If you go from a 10-year plan to a five-year one, for instance, you’ll be out of debt much faster. Just make sure to do the math so you that understand exactly what your new terms will mean for your budget.
For example, let’s say you refinanced a 10-year, $30,000 loan at 5.70% interest. Your new plan has a five-year term at 4.50% interest. In this case, your monthly payments would increase by $231, but you’d get out of debt five years early and save $5,870 on interest.
Typically, the best candidates for student loan refinancing have a steady income and strong credit score. Keep in mind that if you refinance your federal student loans, you’ll lose out on federal student loan repayment options, such as IDR plans and forgiveness programs.
Choose a repayment plan that works for you
If you’re confused about the different student loan repayment plans available, you’re not alone. There are a lot of options, and each has its pros and cons.
Careful research and a bit of patience can pay off, whether you land big savings from a new repayment plan or free up more of your money each month. Explore your student loan repayment options if you need some financial relief or want to pay off your debt faster.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|