Student Loan Repayment: Best Plans & Other Resources

18.09.2019 00:39

Lendedu.com

Student loans can help you pay for an education, but repaying that debt could be a financial burden that stays with you for decades. Fortunately, you have a number of options for repaying what you’ve borrowed.

This guide will cover all of your student loan repayment options, so you can choose the plan that’s best for your situation.

On this page:

How to choose the right student loan repayment plan and strategy

There’s no one right way to repay student loans, as the payment plan that’s best for you will be determined based on your financial situation and your other goals.

For example, those who have extra money to throw at their loans should choose a different payment option than people who are struggling.

Here’s what you should consider, based on your current financial situation:

If you can afford your loans

When you don’t have trouble making payments, two of your best options may be the standard repayment plan or refinancing your loans.

Standard plan

The standard repayment plan for federal student loans is designed for you to repay what you owe in 10 years.

Monthly payment amounts remain the same for the life of the loan and you’ll be debt-free in a decade. This is the default repayment plan chosen by loan servicers unless you enroll in a different plan.

Refinancing

Both federal and private student loans can be refinanced to reduce the interest rate you pay and/or to change your repayment terms.

Refinancing federal loans with a private lender makes sense only if you won’t take advantage of any of the borrower protections federal loans come with, such as income-driven repayment and loan forgiveness.

Refinancing private loans doesn’t mean giving up borrower protections, so it often makes sense if you can qualify at a more affordable interest rate. Reducing your rates can both lower monthly payments and lower the total amount of interest you pay unless you extend your repayment timeline.

Some resources that can help you decide on refinancing include:

Our guide to refinancing federal student loans with a private lender
7 questions to ask before financing
Our guide to when it makes sense to refinance student loans

If you want to pay off your loans faster

If your goal is to pay off your student loan debt faster, you can make extra payments on your current loan, refinance to a new loan with a shorter repayment term, or both.

Making extra or larger payments on your current plan

Making a larger payment than your plan requires can help you to pay off student loans faster. The extra money you pay will all go towards the loan principal, reducing the amount that you owe and the amount of interest that can generate before your next payment.

You can cut years off your repayment schedule if you make extra payments every month.

Refinance to a shorter term

Refinancing to a shorter term can ensure you pay off your loan faster by increasing your mandatory monthly payments.

True, you could achieve this on your own by simply making larger payments. But when you refinance to a shorter loan term, you may also be able to get a lower interest rate.

Some resources that can help you decide whether to refinance include:

Our guide to when it makes sense to refinance student loans
Our guide to paying off student loans early
Our student loan prepayment calculator

If you want to pay less each month

When you want to make your monthly payments more affordable, you have options including choosing an extended repayment plan, consolidating student loans, or using income-driven plans.

Extending your repayment plan

There are a number of extended repayment plan options for federal student loans. Extending your term will cost you more in interest over the life of the loan, but since it spreads your payments over a longer term, you’ll pay less each month.

Or student loan borrowers can specifically select a graduated repayment plan that starts with lower payments that increase gradually over time as their income grows.

Student loan consolidation—through a Direct Consolidation Loan—also opens up the door to extend your repayment period even further—sometimes for as long as 30 years.

Using an IDR plan

Income-driven plans cap monthly payment at a percentage of your discretionary income. This keeps payments affordable, but it does mean you’ll likely have to pay off your loans over a much longer period of time.

Income-driven plans include:

You can learn more about your options in our guide to income-driven repayment plans.

If you can barely pay your loans at all

If you’re struggling to make even a small dent in your student loan payments, consider these options.

IDR Plan

As mentioned above, income-driven plans cap payments at a percentage of the income you receive each month. When your income is low, an IDR plan could result in minimal or even no monthly payments.

And after a certain number of years, your remaining loan balance will be forgiven. The number of years you’ll have to pay depends on which income-driven plan you choose. You can check out our guide to income-driven repayment plans to explore options.

Deferment

Deferment allows you to pause payments. If you are able to qualify for deferment based on financial hardship or other factors, you can get the interest on your Direct Subsidized Loans paid by the federal government during the time your payments are deferred.

Learn more in this guide to student loan deferment.

Forbearance

Forbearance also pauses payments, but it’s less favorable than deferment because interest continues to accrue even on Direct Subsidized Loans. However, it may be your only option. Learn more in our guide to student loan forbearance.

If you want to get student loan forgiveness

Student loans can be forgiven if you qualify for Public Service Loan Forgiveness program and make 120 monthly payments on a qualifying income-driven repayment plan. PSLF is available if you work for the government, a nonprofit, or in certain other industries.

Our guide to Public Service Loan Forgiveness can help you figure out if you qualify.

Forgiveness is also possible if you make the requisite number of payments on an income-driven plan and have a loan balance remaining. Check out our income-driven repayment plan guide to see how long you’d need to pay on different plans to qualify for forgiveness.

Student loan repayment resources

LendEDU has many helpful resources that can help you to choose a repayment plan and understand all of your options for loan repayment. Some of these tools include the following: