Repaying Your Federal Student Loans

Written by: Frank Furr

For many people, the biggest burden of their 20s (and maybe even their 30s and 40s!) will be student loan debt. There are many ways to repay your loans and you may even be eligible for student loan forgiveness. Student loan forgiveness is definitely the best option and is most people’s first choice. This would allow you to reduce your student loan debt or in some cases, you may be able to remove all of your debt altogether. Before you get your hopes up, not everyone will qualify for student loan forgiveness but even if you don’t qualify, you can still minimize the financial burden of your student loans by choosing the right payment plan for you.

Upon graduation, you should be or should have been tasked with selecting a payment plan for your federal student loans. If you did not do this, then you were assigned the default 10-year-plan. If after reading this, you decide that another option is right for you, you can always change your plan. 

There are two basic types of payment plans, “Standard Repayment” plans and “Income-driven Repayment” plans. A big part in choosing which plan is right for you is deciding what is more important between lower monthly payments for affordability or minimizing interest so that you pay less overall.

Within this category of repayment plans, there are three main subgroups. The Standard Repayment plan (already mentioned), the Graduated Repayment plan, and the Extended Repayment plan. 

  • The Standard Repayment plan is a set of fixed payments, spread across the span of 10 years. This is one of the shortest plans so you have the potential to save the most on interest payments. However, this plan also has the potential to have the highest monthly payments. 
  • The Graduated Repayment plan is similar in that it includes a 10-year plan. The key difference is that the Graduated Repayment plan will begin with lower payments and increase over time. The idea here is that you will get a job after graduation and be able to pay an increasing amount as you begin to see a steady income. 
  • The Extended Repayment plan is for those with more than $30,000 in federal student loan debt. This allows you to spread out your payments across up to a 25-year span. This plan may have the lowest monthly payment but depending on the length of the plan, you will pay the most in interest. 

Income-driven payments are not restricted based on time like the Traditional repayment plans. Instead, with an income-driven plan, you will design a custom payment plan based on annual income and household size. These plans tend to claim about 10%-20% of your income. These plans have the potential to have the lowest financial burden as they are tailor-made for you based on what you can afford to pay. Don’t forget to check if you qualify for forgiveness first but I hope this helped you make an educated choice about what Federal loan repayment plan is best for you.

For more information about student loan repayment, visit the Federal Student Aid website.

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