Do you have student loans to repay? Do you have a lot of student loan debt? Let me share my story with you… My standard student loan repayment plan has never been reasonable. When I graduated college, my first standard repayment plan was $300 a month, which would have left me with no money for emergencies, let alone any savings. When I finished graduate school, my standard repayment plan jumped to $800 a month! While I was lucky enough to get a job that paid well, $800 would have eaten up almost 1 whole paycheck a month. Lucky for me, each time I was able to negotiate it down: to $150 a month after college, and to where it is now, at $450 a month. Even being an hourly worker out of college, I was actually able to accumulate a small savings, something I never thought I would be able to do at 22. How can this information help you? Believe me, I didn’t have any help finding out repayment options. Maybe like you, I just realized I couldn’t make those payments every month, and I was desperate to find some help, any help, I could.
Figuring Out How Much You Owe
Lucky for those of us with student loans, the federal government is actually pretty decent at offering different loan repayment options. You don’t even have to work in a special sector, such as education or government, to qualify for some loan repayment options. First, if you haven’t already, find out how much you’ll have to pay each month here on the government’s website. If you have more than one federal government loan, you may want to look into consolidating your loans into a Direct Consolidation Loan. While for federal government student loans only, not private, this gives you the option to consolidate all your loans into (hopefully) a lower interest rate. Best of all, instead of paying different loans, you only pay one loan, your Direct Consolidation Loan, each month. I highly recommend using Direct Consolidation if you can. I used the Direct Consolidation Loan option to consolidate as many of my loans as possible – I believe I would have paid 7-8 different entities if I had not consolidated. As of right now, I pay 3 different entities right now – and trust me, keeping track of them all is still a challenge! Sometimes your loans will be sold to other companies, which means the name of your loan servicer (and who you pay) changes. Occasionally, these new companies will ‘lose’ your past payments, and require you to resubmit your information again, which can be a real pain if you haven’t kept good records. While this is rare, it has happened to me, and while it didn’t cost me any additional money, it did waste my time.
There Are More Options Beyond the ‘Standard’
Once you’ve figured out how much you owe, and if the ‘standard’ monthly repayment plan is too high, it’s time to look at your options. The StudentAid.ed.gov site has a good summary of your options, but here is a brief rundown of your options, including the repayment plan I am currently using.
Graduated and Extended Repayment Plans
If you don’t make that much money right out of college, but expect to in the future, graduated or extended repayment plans may be for you. The Graduated Plan has repayment terms from 10 to 30 years, whereas the Extended Plan has terms up to 25 years. Graduated plans are good for people who have less than $30,000 in student loan debt, because with $30,000 in loan debt or less, your repayment terms should be no longer than 20 years, and can be as short as 10 years. While 10 years is the same amount of time as the Standard Repayment Plan, your monthly payments are graduated and then increase over time, presumably with your increasing income. The Extended Repayment plan is an option for those who owe more than $30,000 in student loan debt, because those terms are extended out up to a 25 year repayment term. Under the Extended Plan, your monthly payments can either be fixed or graduated. These types of plans are good for those who can predict their income will rise over time, such as with steady raises or promotions, and who have less than $40,000 in student loans. If your student loan debt is between $40,000-$60,000, I’d strongly recommend using the repayment calculator to see what is better between graduated repayment plans and income driven plans. Income driven, described below, may be the better bet if you have over $50,000 in student loan debt.
Income Driven Plans
There are 3 income driven plans: Income Based Repayment (IBR), Income Contingent Repayment (ICR) and Pay As You Earn. Each plan is slightly different, but I’m going to highlight the one I use: Income Based Repayment. IBR is based on your current income and from there, calculates how much you will owe based on a percentage of you discretionary income. That’s right, not your entire monthly income, but a percentage of your discretionary. The percentage is different depending on when you took out your federal student loans. If you took out your loans before July 1, 2014, IBR will be 15% of your discretionary income, but never more than the 10-year Standard Repayment Plan option. The repayment period for IBR is 25 years. If you took out your loans after July 1, 2014, you’re lucky! IBR for you will be 10% of your discretionary income, and won’t exceed the 10-Year Standard Repayment Plan option. Your IBR repayment period is also only 20 years. Extra lucky! You are eligible for IBR basically if your IBR repayment plan (which you’ll find using the calculator link above) is less than your Standard repayment plan. For example, the Standard repayment plan would have me paying $800 a month, while IBR would be $450 a month, therefore IBR would be the plan I qualify for. Put even more simply: if you federal student loan debt is higher than your annual discretionary income, you qualify for IBR. One thing to note: you will have to reapply for IBR every year. If your income has increased over that year, your payments will likely increase as well, but they will never go over how much you would pay under the Standard Repayment option. You can either do it online, if you completed your taxes online, or by mail. Either way you decide to do it, keep copies of everything – make multiple copies of the documents you send by mail for your own record, and print out any emails you receive from the government regarding your loans. Make sure to log in to your My Federal Student Loan portal every once in a while! The emails they send you are no joke – you have to check them. I can’t emphasis enough how important it is to stay on top of your student loans – you’d be surprised how easy it is for one thing to get overlooked, and next thing you know, you have a huge bill due. For more information on income driven repayment plans, check out this comprehensive site from StudentAid.Ed.Gov.
There is Help for Student Loan Repayment
If you have any more questions about government options for tackling your student loan debt, please leave them here in the comments or email me. I’ve been (and am in) your shoes right now and, while repaying student loans every month is annoying, it doesn’t have to be terrifying. There are programs, listed and linked to above, that you can investigate to lower your monthly costs.