How do you decide which student loan repayment plan is best for you? If you’re like many college grads, you may be struggling to pay off your student loans. And little wonder — with the skyrocketing cost of higher education, the average student loan debt has steadily risen over the years. The average borrower now has over $28,000 in debt. Students who attend graduate and professional school tend to have even higher levels of debt, with graduates of medical and law school often exceeding $100,000 in student loans. Tie this debt in with faulty money handling, and you have a recipe for disaster.

Guest Post by Drew Cloud, Director at The Student Loan Report

How To Decide which student loan repayment plan is best for you

The good news is that for many borrowers, there are options for repaying your student loans. For federal student loans, there are specific programs that can help you, particularly if you are having difficulty making your payments each month. These plans may even include an element of loan forgiveness, if you qualify. If you don’t have federal student loans, you may still be able to take advantage of different repayment options with your private student loan lender. Read on to learn more about the different repayment plans available — so you can figure out which one is right for you.

Income-Driven Repayment Plans

For borrowers with limited income and federal student loans, an income-driven repayment plan might be a good option. These programs, offered through the United States Department of Education, cap your monthly student loan payment at anywhere from 10 to 20 percent of your monthly discretionary income. The loan term is increased from 10 years to 20 or 25 years, but after you have completed the terms of your loan, the balance is forgiven.

The main benefit of income-driven repayment plans is that your monthly payment amount will immediately drop. You may also have part of your loan forgiven. However, you will owe taxes on any part of the loan that is forgiven, and because the loan term is extended, you will pay more in interest than you would with a ten-year repayment term.

Income-driven repayment plans can be a particularly good option for anyone who works in the public sector, such as teachers, public defenders or police officers. That is because they may be able to take advantage of the Public Service Loan Forgiveness Program in addition to the income-driven repayment plan. If they make 120 payments under this plan, the balance of their student loans will be forgiven, tax-free.

Standard 10-Year Repayment Plans

The default repayment term for federal student loans is 10 years. For most borrowers, it is a good idea to stick to this payment plan, as it means paying far less in interest than you would if you extended the loan term via consolidation or by choosing a different repayment plan. However, it can mean higher monthly payments. If you can afford these payments and don’t qualify for Public Service Loan Forgiveness, it will typically make sense to stick to the standard plan.

Refinancing Student Loans

If you have private and federal student loans, consider refinancing these loans as a way to reduce your interest rate, switch from a variable interest rate to a fixed interest rate, or reduce your payment term to pay off your loan more quickly. A significant amount of money can be saved through private refinancing; however, you must qualify based on your credit score, income, and other factors to be eligible.

Borrowers should also be aware that if they refinance their federal student loans along with their private student loans, they will lose the benefits of federal student loans, such as the ability to access the more generous student loan repayment options offered by the federal government. Feel free to read up on student loan refinancing at my website, The Student Loan Report.

Exploring Your Student Loan Repayment Plan with Private Lenders

Private student loans do not qualify for federal student loan repayment plans. However, some private lenders do offer borrowers options for modifying their loans to ensure that they can still make their payments. While these programs may not be as advantageous as those offered by the government, they can make the difference for many borrowers between going into default and staying current on their student loans.

What Next?

If you are having trouble making your student loan payments, don’t hesitate to contact your student loan servicer. Exploring repayment options can help you stay on top of your debt — and be the key to paying off your student loans.

You can check out Drew’s site for more info on student loans here.

Have you got any experience with student loan repayments? Have you researched other ways to refinance your loan? We’d love to hear from you, so let us know in the comments below!

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