You’ve put in the time and you’ve snagged the degree. You’ve even gone out and gotten your first job. You’ve taken the first steps on your chosen career path. Now, it’s time to start paying bills… and one of the first ones you have to think about is your federal student loan repayment. There are multiple options for repaying your federal student loans; programs are designed to be flexible and adaptable to the budgets of most recent graduates. Let’s take a look at some of the main student loan repayment programs and do some comparisons.
Standard Repayment
This is the method chosen by most people, and it works just like a car loan, house loan, or any other loan of a fixed amount that you may have had experience with. The payments are the same each month, and include interest and some principal. The repayment for Stafford federal student loans is usually calculated over a ten year period.
Extended Repayment
For borrowers who need to lower their monthly payment to make for better cash flow, extended repayment of federal student loans can be a good option. Instead of the standard ten-year repayment program for federal student loans, the extended repayment schedule can run as long as twenty five years. Note that your student loan debt must be more than $30,000, and you have to have received the loan on or after October 7, 1998. But if you meet these qualifications and can’t quite handle the monthly obligation of the standard repayment plan, extended repayment of your federal student loan may be an option you should consider. You will pay out more total dollars over the life of the loan, but if your income improves, you can usually make extra payments to save on total interest paid.
Income Sensitive Repayment
This plan is designed to meet the needs of borrowers who are on low monthly incomes but don’t want to default on their federal student loan repayment. With the income sensitive repayment plan, your monthly payment is based on how much you make. However, the payment must be at least enough to cover the monthly interest accumulated on the loan. The downside of this plan is that as long as you’re not paying down the principal, the interest just keeps coming due, month after month. You must requalify for this plan each year by submitting proof of your income.
Graduated Repayment
For borrowers who expect their incomes to increase over time, the graduated repayment plan sometimes makes a lot of sense. You start with a lower monthly amount, and, about every two years, the payment increases. As with the income sensitive plan, the payment must be at least enough to cover the monthly interest.