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When it comes time to repay your student loans, you'll be relieved to know that many lenders offer a variety of repayment plans--some of them quite flexible. Which plans are available to you depends on the types of loans you have. If you have bank or government issued federal student loans--for example, Stafford loans--you can choose from several repayment plans designed to make your life less stressful. If you have school issued federal student loans--such as Perkins loans--ask your school about its options for repayment. Private loans, made without federal funds, come with fewer repayment options. (These loans are made primarily to graduate or professional students, and have names such as MedCAP, MBA-EXCEL, ENGAssist or LAWLOANS.) You may want to pick just one method or, if you have several loans, combine approaches to create the best repayment strategy. To investigate your options, call your lender, loan holder or loan servicer. But don't wait until you're seriously behind in your payments--if you're in default on your loans, many of these options won't be available to you. Standard Repayment Plan
If you can afford the monthly payments, you'll probably want to stick with the original repayment plan offered by your lenders. A standard plan carries the highest monthly payment but costs less in the long haul because you pay less interest. Your monthly payment amount and repayment period will depend on your loan balance, but as a general rule you can plan on shelling out $125 per month for every $10,000 you borrowed. You'll make payments for a maximum of ten years. Graduated Repayment Plan
Under a graduated plan, your payments start out low and increase every two to three years. It may be your best option if you are just starting a career or business and you expect your currently modest income to increase steadily. If you got a federal loan directly from the government through the federal direct loan program, your payments may start out as low as half of what they would be under the standard plan (though never less than $25/month). Then they'll increase every two years, for 10 to 30 years. Obviously, you'll pay much more this way, but your monthly payments will never rise to more than 150% of the amount you'd owe under the standard plan. Other lenders may require that you pay only the interest on your loans for a few years. Then you'll switch to payments of principal and interest until your loan is paid off. Your repayment period will always depend on the amount you owe; in extreme cases, it may stretch to 30 years. With any graduated repayment plan, you'll pay more for your loan over time than you would under a standard plan. This happens for two reasons: First, because interest charges are based on your unpaid balance each month, if you keep a higher balance in the early years of your loan you will pay higher interest charges. Second, because you're likely to extend your repayment period to keep your payments from becoming too high toward the end of the loan, you'll be paying interest longer. Extended Repayment Plan
If you need long-term lower payments, you might consider an extended plan. It lets you stretch your repayment over a period of 12 to 30 years, depending on your loan amount. Your fixed monthly payment is usually lower than it would be under the standard plan (it will always be at least $50), but you'll pay more interest because the repayment period is longer. The federal government and many other lenders allow you to combine an extended plan with graduated payments, which will lower your payments even further--and increase your overall costs even more. | Postponing Repayment | | If your loan payments are enormous or you've fallen on hard times, even the most flexible payment plan might not make ends meet. In many circumstances, it's possible to temporarily postpone paying your loans or reduce the amount of your payments. These periods of relief are known as deferments (during which the government pays your interest) and forbearances (during which the amount you owe keeps going up because interest isn't being paid). Don't wait until you're already in default because of missed payments--if you do, your options will be far fewer. At the first sign of trouble, call your loan holder and explain that it's impossible for you to make your monthly payments; you can explore your options for deferment or forbearance with the holder's representative. Next: Repayment > | |
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