7 Ways To Know Repayment Options Of Your Federal Student Loans by Bruce Mesnekoff
1 Standard Repayment Plan
Plan works for all federal subsidized, unsubsidized and consolidated loans and is best suitable for those who are ready to pay high monthly installments for 10 years to pay the loan in full.
2 Graduated Repayment Plan
This plan starts with a low repayment amount initially and gradually increases it every two years. It works on the assumption that the student graduate may not be able to keep aside large sums immediately after graduation, and as they progress in their career and as their income increases, they will be able to make higher repayments every couple of years. It still allows for the total loan repayment at the end of 10 years, though the interest charged is higher than the Standard Repayment Plan. This plan, like the Standard Repayment Plan, is not eligible for any cancellation of outstanding debts after the 10 year repayment period. If some amount is still unpaid, the plan will continue. Its attractive terms make this plan one of the most popular federal student loan repayment options.
3 Extended Repayment Plan
This plan allows for the repayments to be made for up to 25 years from the date of graduation but to be eligible for this plan, the borrower needs to have more than $30,000 in student loans. The borrower can choose from fixed monthly installment option or graduated repayment option which means that the repayment amount will be set low at first but will increase as the years pass. Smaller installments at first would ensure easier payment but the borrower has to make payments over a long period of time, thus paying a higher interest compared to the earlier two plans.
4 Income Based Repayment (IBR) Plan
In Income Based Repayment Plan, the monthly payments are capped at 10–15% of your total discretionary income to start with, and this amount can be readjusted every year based on your income and family size. This repayment plan is made with the repayment period of up to 25 years. If at the end of 25 years, any loan amount is still pending, that debt can be forgiven. To avail this plan, your debt amount should be sufficiently large to justify 25 year repayment period and you will have to regularly furnish your income details to readjust the repayment amount.
5 Pay As You Earn (PAYE) Repayment Plan
Under this plan, the monthly payments cannot be more than 10% of your discretionary income, and based on your income readjustments every year, the repayment amount will also be readjusted. If you have been regular in your repayments for 20 years, you may expect the rest of the debt to be forgiven; for those in public service, their debt can be forgiven after only 10 years of regular repayment. But this plan is available to only those who signed up for loan disbursement on or after 1 October 2011 and whose loan amount is high.
6 Income Contingent Repayment (ICR) Plan
This plan is also for repayment upto 20 years after borrowing, though it decides the monthly payment on one of the two factors, either up to 20% of your discretionary income or a fixed amount based on a 12 year repayment plan. Whatever loan amount is still unpaid after 25 years can be forgiven under this plan. This plan is only for those borrowers who do not qualify for the IBR or PAYE plans since the interest rates are considerably higher here.
7 Income Sensitive Repayment Plan
In this plan the monthly repayments are decided according to the annual income and the amount can be anywhere between 4% to 25% of the monthly gross income. The continual enrolment in this plan is not guaranteed and the borrower has to reapply with relevant documents every year. Also this plan can be subscribed to for a maximum of 5 years after which the borrower will have to switch to another plan where he/she may get another 10 year repayment terms. This plan is one of those federal student loan repayment options that are designed for low-income borrowers who cannot predict their future income and would like to consider terms year-on-year.