When it is time to pay off your federal student loans, you’ll have quite a few options when it comes to student loan repayment plans. How do you know which one is the right choice for you?
Are You Eligible for Loan Forgiveness?
It may be possible that you won’t have to pay back all of your federal student loans. If you’re a government or nonprofit employee, you may qualify for Public Service Loan Forgiveness. Other loan forgiveness programs exist for teachers, nurses, lawyers, doctors, and those in the military. Some states even have state programs, so it’s important to check with your individual area for options, even if you not in one of those five careers.
Loan forgiveness may also be granted for special circumstances, such as in the event of a disability or a bankruptcy.
Does The Standard Plan Work For You?
If you’re not eligible for loan forgiveness, it’s time to think if the standard loan repayment plan is right for you. If you can afford it, it will be the best way to go. You make the same payment every month for 10 years. Following the standard plan can help you pay off your loans quickly without accruing too much interest.
However, if the rate of the standard plan is out of your reach at the moment, you should be thinking about other solutions.
What Are the Alternative Repayment Plans?
There are two alternative repayment plans you may want to consider if you can’t currently afford the standard plan.
Income Driven Repayment Plans
Income driven repayment plans can be a great option, especially if your income is currently lower than you would like it to be or if you absolutely cannot afford the standard plan rate. Your payment will be between 10% and 20% of your income, which will increase or decrease with changes in your pay.
Usually you will pay less every month following an income driven repayment plan, but it’s important to consider the cons of choosing this route. Your loan term will increase from 10 years to up to 25 years, increasing the amount of interest you will pay in the end.
Extended Repayment Plans
Extended repayment plans also increase the number of years you will have to pay back loans from 10 to up to 25, while lowering your monthly payment. However, you can only qualify for this repayment option if you have over $30,000 in outstanding Direct Loans or from the FFEL Program.
As with income driven repayment plans, it’s also important to understand that you will end up paying more in interest if you go with this term.
Choosing the right repayment plan means looking at your finances and making an informed decision. The standard plan can save you money in the long run with less accrued interest, but your bank account may just not be able to afford that option currently. If you’re not eligible for loan forgiveness, it may be time to look at other repayment plans available for your federal student loans.
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