How to choose the right student loan repayment plan and strategy
There’s no one right way to repay student loans, as the payment plan that’s best for you will be determined based on your financial situation and your other goals.
For example, those who have extra money to throw at their loans should choose a different payment option than people who are struggling.
Here’s what you should consider, based on your current financial situation:
If you can afford your loans:
When you don’t have trouble making payments, two of your best options may be the standard repayment plan or refinancing your loans.
The standard repayment plan for federal student loans is designed for you to repay what you owe in 10 years.
Monthly payment amounts remain the same for the life of the loan and you’ll be debt-free in a decade. This is the default repayment plan chosen by loan servicers unless you enroll in a different plan.
Both federal and private student loans can be refinanced to reduce the interest rate you pay and/or to change your repayment terms.
Refinancing federal loans with a private lender makes sense only if you won’t take advantage of any of the borrower protections federal loans come with, such as income-driven repayment and loan forgiveness.
Refinancing private loans doesn’t mean giving up borrower protections, so it often makes sense if you can qualify at a more affordable interest rate. Reducing your rates can both lower monthly payments and lower the total amount of interest you pay unless you extend your repayment timeline.
Some resources that can help you decide on refinancing include:
- Best student loan refinance companies
- Our guide to refinancing federal student loans with a private lender
- 7 questions to ask before financing
- Our guide to when it makes sense to refinance student loans
If you want to pay off your loans faster:
If your goal is to pay off your student loan debt faster, you can make extra payments on your current loan, refinance to a new loan with a shorter repayment term, or both.
Making a larger payment than your plan requires can help you to pay off student loans faster. The extra money you pay will all go towards the loan principal, reducing the amount that you owe and the amount of interest that can generate before your next payment.
You can cut years off your repayment schedule if you make extra payments every month.
>> Read more: How to Pay Off Student Loans in 5 Years
Refinancing to a shorter term can ensure you pay off your loan faster by increasing your mandatory monthly payments.
True, you could achieve this on your own by simply making larger payments. But when you refinance to a shorter loan term, you may also be able to get a lower interest rate.
Some resources that can help you decide whether to refinance include:
- Our guide to when it makes sense to refinance student loans)
- Our guide to paying off student loans early
- Our student loan prepayment calculator
If you want to pay less each month:
When you want to make your monthly payments more affordable, you have options including choosing an extended repayment plan, consolidating student loans, or using income-driven plans.
There are a number of extended repayment plan options for federal student loans. Extending your term will cost you more in interest over the life of the loan, but since it spreads your payments over a longer term, you’ll pay less each month.
Or student loan borrowers can specifically select a graduated repayment plan that starts with lower payments that increase gradually over time as their income grows.
Student loan consolidation—through a Direct Consolidation Loan—also opens up the door to extend your repayment period even further—sometimes for as long as 30 years.
Income-driven plans cap monthly payment at a percentage of your discretionary income. This keeps payments affordable, but it does mean you’ll likely have to pay off your loans over a much longer period of time.
Income-driven plans include:
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
You can learn more about your options in our guide to income-driven repayment plans.
If you can barely pay your loans at all:
If you’re struggling to make even a small dent in your student loan payments, consider these options.
As mentioned above, income-driven plans cap payments at a percentage of the income you receive each month. When your income is low, an IDR plan could result in minimal or even no monthly payments.
And after a certain number of years, your remaining loan balance will be forgiven. The number of years you’ll have to pay depends on which income-driven plan you choose. You can check out our guide to income-driven repayment plans to explore options.
Deferment allows you to pause payments. If you are able to qualify for deferment based on financial hardship or other factors, you can get the interest on your Direct Subsidized Loans paid by the federal government during the time your payments are deferred.
Learn more in this guide to student loan deferment.
Forbearance also pauses payments, but it’s less favorable than deferment because interest continues to accrue even on Direct Subsidized Loans. However, it may be your only option. Learn more in our guide to student loan forbearance.
Student loans can be forgiven if you qualify for Public Service Loan Forgiveness program and make 120 monthly payments on a qualifying income-driven repayment plan. PSLF is available if you work for the government, a nonprofit, or in certain other industries.
Our guide to Public Service Loan Forgiveness can help you figure out if you qualify.
Forgiveness is also possible if you make the requisite number of payments on an income-driven plan and have a loan balance remaining. Check out our income-driven repayment plan guide to see how long you’d need to pay on different plans to qualify for forgiveness.
Student loan repayment resources ——————————--
LendEDU has many helpful resources that can help you to choose a repayment plan and understand all of your options for loan repayment. Some of these tools include the following:
- Federal Student Loan Repayment Guide
- Student Loan Consolidation Guide: All Your Options Explained
- Can You Consolidate Student Loans and Other Debt Together?
- How Long Will It Take to Pay Off My Student Loans?)
- How Much Do I Owe in Student Loans?
- What is a Student Loan Grace Period?
- Can You Be Arrested for Not Paying Student Loans?
- How to Get Student Loan Help for Free
- Can’t Pay Your Student Loans? Here Are Your Options
- Strategies for Paying Off Large Amounts of Student Debt
- Can You Pay Student Loans With a Credit Card?
- How to Lower Student Loan Payments
- How to Use a HELOC To Pay off Student Loans
- Should I Transfer my Student Loans to a Balance Transfer Credit Card
- Should You Pay Off Student Loans with Your 401(k)?
- Why You Shouldn’t Advance Your Due Date on Student Loans
- Pay Off Student Loans or Invest Calculator
Saving money on repayment
- How to Lower Student Loan Interest Rates
- How to Save Money on Student Loans in 2019
- 12 Tips for Paying Off Student Loans Fast in 2019
- Lump Sum Payments Could Be Key to Speedy Repayment
- Paying Off Student Loans Early: Benefits and Tips
- Where to Find Grants to Pay Off Student Loans
- Which Student Loans to Pay Off First
- Student Loan Prepayment and Payoff Calculator
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