The process of getting a student loan isn't nearly as difficult as planning to pay one-off. For example, you can choose from multiple income-driven repayment plans (IDRs) if you are interested in paying down federal student loans beyond the standard 10-year plan.
Upon leaving school, you will be able to choose a repayment plan after completion of exit counseling. In the absence of this, your loan will be automatically placed on the 10-year standard repayment plan. Once you have begun repaying your loans, however, you can make changes at any time. Here is a guide that can help you decide which option is best for you.
If you want to pay less interest
Best repayment option: standard repayment.
You pay back student loans in equal monthly installments over ten years under the standard student loan repayment plan. If you can afford the standard repayment plan, you will pay less in interest and repay your loans faster than in the other repayment plans offered by the government.
How to enroll in this plan: When you begin repayment, you are automatically enrolled in the standard plan.
If you need lower student loan payments
Best repayment option: income-driven repayment.
Repayment plans based on income include income-based, income-contingent, Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). Your income must be too low to afford the standard payment if you choose these options.
The monthly payment amounts for income-driven plans typically range between 10% and 20% of your discretionary income. When you're unemployed or underemployed, payments can be as low as $0 and can vary from year to year. A 20 or 25 year repayment period is available with income-driven plans. You must pay taxes on any forgiven balance at the end of that term.
To determine what you'll owe on each repayment plan, use the Loan Simulator provided by the Education Department. As a result, you will likely have to pay more interest overall if you choose an option that decreases your monthly payments.
How to enroll in these plans: Get started with Chipper in order to enroll in income-driven repayment. Choose the plan that suits your needs or choose the lowest payment when you apply. If you're married filing jointly, you might want to examine your options since taking the lowest payment is best in most cases.
If you qualify for student loan forgiveness
Best repayment option: income-driven repayment.
Government and certain nonprofit employees can qualify for Public Service Loan Forgiveness. Upon making 120 qualifying payments, the remaining balance on your loan may be forgiven tax-free.
For PSLF to apply, standard repayment plans or income-driven repayment plans must be used. An income-driven plan requires that you make the majority of the 120 monthly payments. Under the standard repayment plan, the loan is paid off before you are eligible for forgiveness.
