Here’s Exactly How to Choose the Best Plan for Paying Off Your Federal Student Loans

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If you’re one of the 44 million U.S. borrowers with student debt, you know what a headache 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 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 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 repayment plan is learning about your options.

Federal student loans come with eight different plans. For the purposes of this guide, we’ll group the five income-driven plans together, but you can follow the links to learn about each plan in full detail.

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 repayment plans; each lender sets its own requirements for repayment, so you’ll need to speak with them to learn about your options.

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 destroying 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 income-driven 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 income-driven repayment 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 income-driven 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. Keep in mind, however, 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 lender. They 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 guess work 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 about $328 per month for 10 years. Over the life of your loans, you’ll pay about $9,452 in interest.

But if you can pay just $50 more per month, you’ll save about $1,700 in overall interest and get out of debt 1.7 years ahead of schedule. If you can ramp up your payments to $500 per month, you’ll save over $4,000 in interest and get out of debt about 4 years early.

By revealing your total savings, these calculators can motivate you to pay off your loans faster.

Student Loan Prepayment Calculator

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But calculators will also show you what happens if you lower your monthly payments. This income-based repayment calculator, for example, gives a bird’s-eye view of your loans on IBR. 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 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 income-driven 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 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 benefits, such as income-driven repayment 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 own 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 options if you need some financial relief or want to pay off your debt faster.

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. 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.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.