Student loan repayment options: find the best plan

There are several federal student loan repayment options. But the best for you will probably be a standard refund or an income-based refund, depending on your goals.

You can also reduce your payments with the graduated and extended repayment plans of student loans, which are not dependent on your income. These offer fewer benefits than income-based repayment, but they can make sense if you’re making a lot of money or want predictable payout amounts.

If you want to pay less interest

Best refund option: normal refund.

On the standard student loan repayment plan, you make equal monthly payments for 10 years. If you can afford the standard plan, you’ll pay less interest and pay off your loans faster than you would with other federal repayment plans.

How to join this plan: You are automatically placed in the standard plan when you enter the reimbursement.

You can prepay loans to save interest with any repayment plan, but the impact will be greater with standard repayment. Just be sure to tell your student loan officer to apply the extra payment to your principal balance rather than your next monthly payment.

If you need lower student loan payments

Best refund option: income-based reimbursement.

The government offers four income-based reimbursement plans: income-based reimbursement, income-based reimbursement, Pay as you earn (PAY) and Pay as you earn (REFUND). These options are best if your income is too low to afford the standard payment.

Income-driven plans set monthly payments between 10% and 20% of your discretionary income. Payments can be as small as $ 0 if you are unemployed or underemployed and can change each year. Income-driven plans extend the term of your loan to 20 or 25 years. At the end of this term, any remaining loan balance will be canceled, but you pay taxes on the canceled amount.

Before change student loan repayment plans, plug your information into the education department Loan simulator to see what you will need on each plan. Any option that lowers your monthly payments will likely make you pay more interest overall.

How to join these plans: You can apply for an income-tested refund with your student loan manager or to When you make your request, you can choose the plan you want or go for the lowest payment. It’s best to go with the lowest payout in most cases, although you may want to consider your options if your tax return status is married filing spouse.

Gradual repayment decreases your payments first – potentially up to the amount of interest accrued on your loan – then increases them every two years to complete the repayment in 10 years.

If your income is high relative to your debt, you may initially pay less with a phased repayment than with an income-based plan. This could free up short-term money for a different purpose, like a down payment on a house, without costing you as much interest as an income-oriented plan. You would still pay more interest than with a standard repayment.

Upfront payments on the progressive plan can potentially triple in volume. You need to be sure that you can make the biggest payments if you choose this plan. Generally speaking, it’s best to stick with the standard plan if you can afford it.

If you want predictable payment amounts, the extended repayment plan for student loans may be meaningful to you. The extended plan reduces payments by extending your repayment period up to 25 years. You must owe at least $ 30,000 in federal student loans to be eligible for an extended repayment.

You can choose to pay the same amount each month over this new loan term, as under the standard repayment plan, or you can opt for progress payments. Whether you choose extended equal or graduated payments, you’ll have a good idea of ​​what you’ll pay each month in the future.

Under income-based repayment, payments may change each year based on your income. If your salary goes up, so will your payments. But extended repayment doesn’t offer loan cancellation like income-based repayment plans; you will fully repay the loan at the end of the repayment term.

How to join this plan: Your student loan manager can help you transition to the extended repayment plan.

You may be able to temporarily postpone the refund with deferment or forbearance. Some loans earn interest during deferral, and all earn interest during forbearance. This increases the amount you owe.

If your financial difficulties are salary related, income-based reimbursement is a better option. Income-driven repayment plans can reduce payments to $ 0 – and those payments count towards the rebate.

If you qualify for a student loan forgiveness

Best refund option: income-based reimbursement.

Public Service Loan Forgiveness is a federal program available to the government and some non-profit employees. If you qualify, your loan balance could be forgiven tax-free after making 120 eligible loan payments.

Only payments made under the Standard Repayment Plan or Income Based Repayment Plan are eligible for PSLF. To qualify, you must make most of the 120 payments of an income-oriented plan. On the standard plan, you would pay off the loan before it was eligible for a forgiveness.

How to join these plans: You can request a refund based on income from your manager or from

Do you have private student loans?

Private student loans are not eligible for income-tested repayment, although some lenders offer student loan repayment options that temporarily reduce payments. If you have trouble repay private student loans, call your lender and ask what your options are.

If you have a credit score of at least 600 – or a co-signer who does – there’s little downside to refinance private student loans at a lower interest rate. Dozens of lenders are offering student loan refinancing; compare your options before applying to get the lowest possible rate.

How much could refinancing save you?

Lower your student loan payments

Get pre-qualified for refinancing to compare actual rates and see what you could save each month.

Some private lenders also refinance federal student loans, which can save you money if you qualify for a lower interest rate. But refinancing federal student loans is risky because you lose access to benefits like income-based repayment plans and loan cancellation. Refinance federal loans only if you are comfortable giving up those options.

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