Whether you’re an entering freshman or a first-year grad student, being in the know with what your federal student loan debt looks like is a good way to stay ahead of the game for when the time comes to begin repayment. Did you know you have several different options for repayment? You might even be eligible for loan forgiveness. So, what exactly are your options, you ask? Well, read on for more info. And then visit your school’s financial aid office for ways to be proactive before you accept your diploma.
The U.S. Department of Education lists the multiple different repayment plans available for borrowers of Federal Stafford loans. If you borrowed a Federal Perkins Loan, your options for repayment will be different. You’ll want to contact your school’s financial aid department for more information.
Standard Repayment — Payments are a fixed amount for 10 years of at least $50 per month. With this payment plan, you’ll pay the least amount in interest but will have the higher monthly payment over the length of the loan.
Graduated Repayment — Payments begin low but gradually increase (usually every two years) over the length of the loan. In the end, you’ll pay more in interest under this plan than you would under the standard repayment plan.
Extended Repayment— Only available if borrower has more than $30,000 in total student loans, and may be fixed or graduated. Loan term varies and can be extended to 25 years. Monthly payments will be lower than with the standard plan but, because the term has been extended, the total amount of interest paid will be greater.
Income-Based Repayment — Length of loan can be extended up to 25 years (and remaining balance may be cancelled after 300 on-time payments have been made) and will vary depending on qualifying partial financial hardship, family size and adjusted gross income level.
Income-Contingent Repayment— Payments are based upon annual income (if married, your spouses will be included), family size and total amount of student debt and will be calculated over 25 years. As with the income-based repayment, any portion of remaining debt after 25 years may be forgiven. However, you may be required to pay income tax on the forgiven portion.
Income-Sensitive Repayment — Based on annual income and will change as your income changes. Loan term will be up to 10 years, but you’ll pay more in interest than you would under the standard repayment plan.
Sample monthly payment
The average student loan debt that Americans graduate with after earning an undergraduate degree is currently $25,000, according to the U.S. News post by Equal Justice Works on July 5, 2012, titled “Student Debt Crisis Still Needs Long-Term Solution.” If you’re lucky (?) enough to leave school with $25,000 or less, here is what you could expect to have to fork over per month for your payment:
- Standard Repayment: $25,000 at 6.8% interest over 10 years will amount to a monthly payment of $287.70. Total paid back will be: $34,524.10.
- Extended Repayment: Not an option for loans less than $30,000
- Graduated Repayment: $197.54 monthly over 10 years for a total of $36,388.89
Income-based payment plans will vary depending on your income. Keep in mind that the longer the length of your loan (10, 15 or 30 years), the more interest you’ll end up paying back. For more info, and to plug in your total debt to get an estimate of what your payment may be, visit the repayment comparison calculator at StudentAid.ed.gov.
Loan forgiveness acts
While all of this money talk may seem very overwhelming, what’s important is that you get a quality education. Depending on the career path you choose, you could be eligible for loan forgiveness. Qualifying career fields include (but may not be limited to):
- Employment with any state, federal or local government agency or a tax-exempt non-profit agency
- Emergency management, military service, public safety or law enforcement services
- Public health services, public education or public library services
- School library and other school-based services
- Public interest law services, early childhood education or public service for individuals with disabilities and the elderly.