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If your federal student loan repayment plan is hindering your ability to get out of debt, it's good to know you can renegotiate a payment plan that better serves your debt-reduction goals. To discuss your options for changing your student loan payoff plan, contact your loan servicer. The company holding your loan will generally give you one of the following five options for paying off your student loan debt:
- Standard repayment - A standard payment plan is ideal for paying loans off quickly, and such a plan means paying the least amount of interest. Standard loans feature a set monthly payment amount and are usually paid off within 10 years.
Extended repayment - An extended repayment draws out the time allowed for paying off your student loans. This repayment plan can give you up to 25 years to meet your financial obligations. It features fixed payments or graduated payments that start out low and continue to increase every two years. This repayment plan means paying more interest than a standard loan, and it can only be done if you have more than $30,000 in direct loan debt.
- Graduated repayment - This payment plan is designed with the idea that over time you will earn more and be more capable of making higher payments. With this agreement, the payment starts out low and then gradually increases every two years. Repaying in this manner can take up to 10 years, and the interest you pay will be higher than the standard repayment plan.
- Income contingent repayment - With this repayment plan, which is only available for direct loans, your monthly payments are calculated each year according to various factors, including how much you owe, your adjusted gross income (AGI), your family size and the income of your spouse, if you have one. The repayment period for this type of loan is usually 25 years.
- Income-based repayment - This repayment plan is adjusted annually based on your income, taking into consideration financial hardship. Such plans usually give you more than 10 years to pay back your student loan.
When you feel like you're mired in debt, it's helpful to know that your student loan repayment plan isn't set in stone. Consider all of your options and you are likely to find a repayment plan that can help you succeed in your plan to reduce your debt.
About the Author:
Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.
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