by Matt Killorin
November 30, 2016
by Matt Killorin
November 30, 2016
Graduating from college takes determination, hard work, and fortitude — but so does paying for your education. Picking the right student loan repayment option is so hard because you often enter into the process before you have a real idea of what your future will hold. And while you can change the terms of your loan down the road, you can't change the amount you borrowed.
"Many students just borrow loans without thinking about what the payments will look like, what their job prospects will be, and how they will handle their finances in the future," said Betsy Mayotte, director of consumer outreach at American Student Assistance, a Boston-based nonprofit. In other words, if you're drawn to a career that typically pays $35,000 a year, it may be unwise to take on $200,000 of debt to pay for a private school education.
And when it comes to private loans, tread lightly! It's important to remember that unless you have a well-established credit history, you're going to need a cosigner to take out a non-federal student loan — private lenders won't take on the risk. And private loans don't come with the protections and flexible repayment options of federal student loans: Once you have a private loan, your only real option for changing the terms of it is through refinancing.
Federal student loan repayment options
Don't panic, though: When it comes to your federal student loans, you have options. The Department of Education's (DOE) website lists a number of federal loan repayment options meant to cater to borrowers' needs. There's also the Federal Student Aid Repayment Estimator, a great tool for estimating repayment for all of the federal plan options available, including how much you'd pay per month, overall, and if there is any forgiveness available.
But while you're here, let's take a look at the two primary types of federal loan repayment plans: Basic and Income-Driven Plans (IDP), and what they encompass.
Basic repayment plans
Basic loans are not driven by your post-graduation income. There are three types of Basic plans: Standard, Graduated, and Extended.
Income-Driven Plans (IDP)
Most of us fall into the income-driven spectrum. There are a few different flavors of Income-Driven Plans, but they all share many of the same traits:
Speaking of forgiveness, check to see if you're eligible for Public Service Loan Forgiveness (PSLF), which wipes out your balance after 10 years of governmental or accredited non-profit employment. PSLF is not taxable.
Income-Based Repayment Plan (IBR)
Pay As You Earn Plan (PAYE)
Revised Pay As You Earn Plan (REPAYE)
Income-Contingent Repayment Plan
When it comes to student loans, remember to consider the "long game," as Mayotte says. "It's not about paying the least amount per month–it's about paying the least over time," she says. If you take a close look at the DOE's website, talk with your loan servicer, and consider your future career, you'll make the right loan choice for you.
The post What Are My Student Loan Repayment Options? appeared first on The Simple Dollar.
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This article was written by Matt Killorin from The Simple Dollar and was legally licensed through the NewsCred publisher network.