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Understanding Repayment Options for Student Loans

Written by CB Community

Before you take out a student loan, you should first familiarize yourself with the different repayment options that are available.

There are several ways of repaying student loans, although the methods and terms will differ depending on whether you get a private student loan or a federal student loan.

Repayment Options for Private Student Loans

There are various private student loan lenders out there. If you are considering taking out a private student loan, it is important that you compare different lenders to find the most favorable option for you.

Also, make sure you do the math to know what each repayment option will cost you over the life of the loan.

While many private student loans offer fewer choices for borrowers in comparison to federal student loans, that is not true of all private student loans.

You could potentially get a private loan with a low fixed rate and variable interest rates, which would enable you to find the best fit for your current and future budget. If you opt for a fixed rate, you will not have to worry about interest rates going up later.

In general, private student loans come with four main repayment options. They are:

  • Full deferment means you pay nothing while at college. You start making interest and principal payments within a set timeframe after you graduate.
  • Fixed payments involve paying a low fixed amount while you are enrolled at school and paying larger repayments after you leave.
  • Interest-only payments mean you make interest-only payments when you are a student and then start paying the principal and interest payments after graduation.
  • Immediate repayment involves paying the principal and interest payments as soon as your student loan is disbursed.

Repayment Options for Federal Student Loans

There are various repayment plans available with federal student loans that you could be eligible for. Here are some of the main options.

Standard Repayment Plan

All borrowers are eligible for the standard repayment plan. The payments are fixed and you need to pay off the loan within a ten-year period.

If you want to repay your loan in the shortest amount of time to minimize interest charges, a standard plan is a good option when going with a federal student loan.

Graduated Repayment Plan

A graduated repayment plan is also available to all borrowers.

Repayment works by beginning with low payments and then gradually increasing the amounts over time. You will need to pay off the loan within ten years.

Extended Repayment Plan

With an extended repayment plan, all borrowers who owe more than $30,000 are eligible.

The repayments can be fixed or graduated, with the loan term lasting up to twenty-five years.

Pay As You Earn Repayment Plan

When you start working after graduation, you can repay your student loan through a PAYE repayment plan. The monthly payments equal 10% of your discretionary income, but the amount never exceeds the amount you would pay with a Standard Repayment Plan.

Eligible borrowers are those who received a disbursement of a Direct Loan on or after the date of October 1, 2011.

Revised Pay As You Earn Repayment Plan

This option is also only available to Direct Loan borrowers. Like the PAYE repayment plan, the monthly repayments of this plan are set at 10% of your discretionary income.

However, with a REPAYE plan, you could end up paying more in interest over the lifespan of the loan in comparison with a Standard Repayment Plan.

Income-Based Repayment Plan

With this plan, which is available to borrowers of certain types of loans, you pay 10% or 15% of your discretionary income.

After twenty or twenty-five years, you will be eligible for Public Service Loan Forgiveness.

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CB Community

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