If you graduated earlier this spring and used student loans in your college financing strategy, you likely just received (or will soon receive) your very first student loan expenses. For many graduates, this first bill can come as an unwelcome surprise. Sure, you knew you needed to pay these loans back someday , but now that that day is here, and you see the size of your expected monthly payment, you might be feeling unprepared to handle repayment. Rest assured: if that monthly payment seems unaffordable based on your current commercial note buyers, you do have some options. The government offers a number of pay back plans for your federal government education loans, some of which may offer you some relief:
- Standard Repayment : The default strategy, which divides the balance owed (plus interest) equally over 120 obligations, so that the loan is paid off within 10 years. If you did not demand otherwise, this is likely the plan that the first bill was based upon.
- Extended Repayment : If your total student loan balance exceeds $30, 1000, allows you to extend repayment over up to 25 years, greatly reducing monthly payments.
- Graduated Repayment : Payments begin small, then gradually increase over the course of repayment. This plan is based on the theory that earnings tend to be lower in the beginning of careers, and gradually boost over time.
- Pay As You Earn Repayment : Caps monthly payments at 10% of the household’s discretionary income, and forgives leftover loan balances after 20 years. This plan is currently only available to “new borrowers, ” as defined by the federal government, though availability will be expanded in the coming year.
- Income-Based Repayment : Caps monthly payments at 15% of the household’s discretionary income, and forgives remaining loan balances after 25 years.
- Income-Contingent Repayment : Caps monthly payments at 20% of the household’s discretionary income, and forgives remaining loan balances after quarter of a century.
- Income-Sensitive Repayment : Obligations are based upon income, but each lender’s formula varies. This plan of action is only applicable to loans borrowed through the government’s FFEL lending plan, which expired in 2010. Current graduates are unlikely to have loans old enough to qualify.
If you wish to learn more about these types of plans or are interested in changing your student loan repayment plan, simply contact your student loan servicer (found on your bill or by logging into Our Federal Student Aid ). Some plans possess eligibility requirements beyond those in the above list, and your servicer can confirm your eligibility.
You may also utilize the Section of Education’s Repayment Estimator to determine and compare expected payments below each of the above plans. In addition to monthly payments, the calculator also offers estimates of the total interest paid under each plan, illustrating the fundamental trade-off inherent in loan pay back: the less you pay out on a monthly basis, the more you will pay in interest over time. Be aware, nevertheless , that you can—with few exceptions—change your own repayment plan at any point and/or pay more than the minimum amount due with out penalty. Therefore , be sure to review your loan payment plan as your commercial note buyers change over the years to determine if your current monthly payment still works for you, or if you could possibly afford more. The more you pay on a monthly basis, the much less interest you’ll pay over time. Before long, you’ll be celebrating the receipt and payment of that last student loan expenses.