Your student loans will generally come due about six months after you graduate or leave college, though some loans will not have that grace period. You may discover at this point that you can’t quite afford the current repayment plan. Here’s how you could change your student loan repayment plan.
While you could change your student loan repayment plans, there are some important things you need to know before you choose this option.
Repayment Plans On Federal And Private Student Loans
The repayment plans are different for federal and private student loans.
The federal government sets a standard 10-year repayment plan on all loans. This plan divides the total amount you owe into 120 payments, so you pay the same amount every month for 10 years. Borrowers are automatically placed in the standard 10-year plan when repayments start six months after graduation.
With private student loans, there is no standard repayment plan as each lender offers borrowers a few loan term options to choose from. The loan term you choose determines your monthly payment amount, the total cost of the loan, and how long it will take to clear your debt. You may clear your debt quickly and pay less interest with a shorter term, but your monthly repayments will generally be higher. A longer loan term can mean lower monthly repayments, but you may pay more in interest, and take longer to clear your debt.
You could change the repayment plans on both, federal and private student loans but the processes are different.
How To Change Your FEDERAL Student Loan Repayment Plan
Step1: Research Your Repayment Plan Options
If you’re looking to lower your monthly repayments, an income-driven repayment plan may be the best option for you. The federal government offers four income-driven repayment plans that are designed to be affordable:
- Saving on a Valuable Education (SAVE) Plan – formerly the REPAYE Plan
- Pay As You Earn (PAYE) Repayment Plan
- Income-Based Repayment (IBR) Plan
- Income-Contingent Repayment (ICR) Plan
These plans set your monthly payments according to your income and family size. Each income-driven plan works differently so you must take time to understand what each plan entails and choose one that works best for you. You can change your plan as often as you need to if your circumstances change.
The advantage of income-driven plans is they may make loan repayments more affordable. The downside however is that they could extend the repayment term, or result in paying more in accrued interest.
Step 2: Talk to Your Loan Servicer
After you’ve researched the different options available, contact your loan servicer to notify them about your desire to change your student loan repayment plan.
If you’re not sure which plan is the best fit for you, talk it over with your loan servicer. They can help walk you through the pros and cons of each plan as they apply to you.
Step 3: Complete The Necessary Paperwork
One you’ve identified the best income-repayment plan for you, you will need to submit an application along with the necessary supporting documentation.
Options Other Than Income-Driven Plans
In addition to income-driven repayment plans, the federal government also offers deferment, forbearance, and consolidation options. Here’s how each of these works:
Deferment
Deferment is a way to pause your loans without damaging your credit. With the ability to pause payments for a period of time, you can concentrate on re-budgeting. If you have federal subsidized student loans, you will also not have to pay interest during that period. However, if you have federal unsubsidized loans, you will be responsible for the interest that accrues.
To apply for deferment, you have to identify the type of deferment you are requesting and complete the corresponding form. Common circumstances that may qualify you for deferment include if you are enrolled in college, unemployed, experiencing economic hardship, or serving in the military or Peace Corps.
Forbearance
Similar to deferment, forbearance allows you to pause your federal student loan repayment, but for a shorter period of up to 12 months. This is a welcome choice for those who lose their job, but it’s important to note that interest will continue to accrue over this period, no matter the type of loan.
You may qualify for forbearance if you are in a medical or dental program, serving in the AmeriCorps, having financial difficulties or medical expenses, or your monthly payment is 20% or more than your income. There may be other qualifying factors, but it’s best to talk to your servicer to see if you can apply.
Consolidation
Consolidation is a great option if you have several loans with varying amounts and interest rates. It could simplify your payment process or lower your monthly payment by increasing the repayment period. You may also qualify for income-driven repayment plans after consolidation.
It’s important to note that increasing the repayment term will also increase the total amount you repay over time.
How To Change Your PRIVATE Student Loan Repayment Plan
Private lenders do not offer alternative income-repayment plans like the federal government does. However, you may have the option to refinance your existing private student loans. Refinancing involves exchanging your current loan for a new loan with new terms.
When you refinance your private student loans, you may be able to choose a new repayment plan that better suits your current circumstances. If you’re earning a higher monthly income, you can choose a shorter repayment term and increase your monthly payments. This could help you clear your debt faster and also save you hundreds of dollars in accrued interest over the shorter term.
If you’re not earning enough to cover your monthly expenses and the monthly repayments, you can choose a longer repayment term. This lowers your monthly payments and makes them more affordable. However, it could take longer to clear your debt with this option, and you’ll pay more in accrued interest over the longer term.
Refinancing private student loans could be a great option if you’ve improved your credit since originally applying for the loan. When you refinance, the lender will offer you a new interest rate based on your current credit score and other factors. If your credit has improved, you may qualify for a lower interest rate, which could save a substantial sum over the remainder of the loan term.
You can refinance with the same lender or another lender that’s offering you better terms and a lower interest rate. If you decide to refinance private student loans, it’s advisable to spend some time researching different lenders and their terms before submitting a refinancing application.
Refinancing Federal Student Loans
You can refinance federal student loans, but this can only be done through private lenders. Once you refinance federal student loans, they become private loans and you will lose all current and future benefits and protections associated with the original loan. This includes income-driven repayment plans and forgiveness programs, and this process is irreversible. Make sure you definitely won’t need the benefits associated with your federal student loans before you choose to refinance them.
What to Know When Changing Your Student Loan Repayment Plan
These are a few important things you need to do before and after changing your student loan repayment plan.
1. Check Your Payment Due Dates
Do this before you submit any application. Regardless of whether you’re changing the repayment plans on your federal or private student loans, the process can take time. This could be anywhere from a few days to a few weeks. Your new repayment plan comes into effect only when the process is complete, and you receive the new loan agreement. Until that time, your loan is still under the old repayment plan and its terms and conditions.
You still need to make all loan payments that come due while the new loan repayment plan is being processed. If you stop making due payments before the process is complete, they will be considered as late payments and you may end up paying late fee fines and interest on the outstanding amount.
2. Update Information For Automatic Payments
If you’ve set up auto-pay for your student loans, make sure the information is updated for your new loan. Change the payment due dates if your lender is the same but your due date has changed with the new plan. If your lender has changed, you’ll need to set up a new auto-pay plan. Speak to your bank so that you don’t overlook some vital detail that sends your payment out on the wrong date or the wrong lender.
Your lender is the best person to speak to if you’re unsure about changing your student loan plans or any other aspect related to your loan. Federal loan servicers, as well as private lenders, go out of their way to help student borrowers better manage their loans, don’t hesitate to reach out for help.
If refinancing is an option for you, find and compare refinance lenders for FREE. Discover personalized private loan refinance options, and find the ideal student loan for you!
