Repayment Plans for Federal Student Loans
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Federal student loan programs help millions of students afford college. Federal loans comprise nearly 93% of all student loans, according to EducationData.org. Borrowers must begin making payments on their loans within six months of graduating or leaving school. However, people can access many student loan repayment options. Examples include income-based plans and loan forgiveness programs.
Learners who are considering taking out federal student loans should understand their options. This guide explores the best student loan repayment plans for various situations.
Do I Need to Start Paying Back My Loans During College?
Most federal student loan programs offer a six-month grace period. Borrowers do not need to make monthly payments until six months after graduating or leaving their program.
However, some student loans begin accruing interest while the student attends school. In these cases, borrowers may benefit from making payments during college. Doing so can help students pay significantly less interest.
Does the Federal Government Offer Numerous Loan Repayment Plans?
The federal student aid program offers various student loan repayment options. For example, borrowers can choose the standard repayment plan. This plan requires monthly payments over 10 years. Borrowers can also choose an extended repayment plan, a graduated repayment plan, or an income-based repayment plan.
Borrowers can use the federal government's loan simulator to find the best student loan repayment plan for their circumstances. The simulator recommends the plan that best fits the borrower's needs and goals.
How Do I Get an IDR plan?
Students with federal loans can apply for an >income-driven repayment plan. These plans feature a monthly payment amount based on the borrower's income and family size.
Income-driven plans help borrowers with lower incomes afford monthly payments. Depending on the plan, borrowers pay 10-20% of their discretionary income each month. After 20-25 years, the federal government forgives the remaining loan balance. Borrowers apply for an income-based repayment plan through their loan servicer.
What Is a Standard Loan Repayment Plan?
The >standard loan repayment plan divides the borrower's loan into monthly payments over 10 years. Borrowers with consolidated loans make monthly payments for up to 30 years. Compared with other student loan repayment options, the standard plan often requires higher monthly payments. However, borrowers generally pay off the loan faster and save money on interest.
If borrowers do not choose another repayment plan, their loan servicer defaults to the standard repayment plan.
What Is the Income Limit for Income-Based Student Loan Repayment?
The federal student aid program sets no income limit for income-based repayment plans. These plans feature monthly payments of 10-20% of the borrower's discretionary monthly income. Borrowers using an income-based plan must >submit information about their income and family size annually.
Students should contact their loan servicer for more information about income-based repayment plans. The federal government offers four income-based student loan repayment options.
Types of Repayments Plans
Borrowers can choose from several student loan repayment options. However, borrowers may not qualify for every plan. The best student loan repayment plan depends on your unique circumstances.
Standard Repayment Plan
People who choose the standard repayment plan make monthly payments for 10 years. This plan typically requires a slightly higher monthly payment than other options. However, borrowers usually pay off the loan sooner and pay less interest.
Multiple federal loans qualify for the standard repayment plan, including Direct Loans and the Federal Family Education Loan. Loan servicers use the standard repayment plan as the default option.
Extended Repayment Plan
The extended repayment plan gives borrowers more time to pay back their loan. Borrowers generally have a lower monthly payment with the extended plan than with the standard plan. Under the extended repayment plan, borrowers repay their Direct Loans or PLUS Loans over 25 years.
Only certain borrowers qualify for the extended repayment plan. Borrowers need more than $30,000 in outstanding federal student loans. The monthly payment may be a fixed or graduated amount. Borrowers with a graduated extended repayment plan can increase their monthly payment every two years.
Income-Based Repayment Plan
Income-based repayment plans feature monthly payments based on the borrower's income. Most income-based plans require a monthly payment of 10% of the borrower's discretionary income. Borrowers make payments for 20-25 years, depending on the plan. The payment amount changes if the borrower's income or family size changes.
The Federal Student Aid office provides four income-based plans. Under each plan, the federal government forgives the remaining balance at the end of the borrower's repayment period. Learners should contact their loan servicer for more information about income-based student loan repayment options.
Graduated Repayment Plan
The graduated repayment plan is ideal for borrowers who expect their income to increase over time. Under the graduated plan, the monthly payment increases every two years. Borrowers repay federal student loans over 10 years. Borrowers with consolidated loans make payments for up to 30 years.
Under this plan, monthly payments must be greater than the monthly interest amount. Monthly payments may not exceed more than three times the monthly payment of any other repayment plan.
Loan Forgiveness Eligibility
Borrowers may qualify for loan forgiveness programs, also known as loan cancellation programs. These options eliminate the remaining balance on a borrower's loan after the individual meets eligibility requirements. Only certain borrowers can qualify for loan forgiveness. The process typically takes 5-10 years.
For example, the Public Service Loan Forgiveness Program cancels the remaining loan for borrowers who work in qualifying government or nonprofit jobs. Borrowers must have made 120 monthly payments. The Teacher Loan Forgiveness Program forgives up to $17,500 of loans. To qualify, teachers must work in a low-income school for five years.
The federal government may also discharge loans for death, disability, and school closures. Borrowers should contact their loan servicer for details about loan forgiveness programs. Private loans do not typically qualify for forgiveness programs. As a result, borrowers who meet the eligibility requirements for loan forgiveness should prioritize federal student loans.
Genevieve Carlton holds a Ph.D. in history from Northwestern University and earned tenure as a history professor at the University of Louisville. An award-winning historian and writer, Genevieve has published multiple scholarly articles and a book with the University of Chicago Press. She currently works as a freelance writer and consultant.
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