Once an individual’s student loans are out of deferment and their grace periods are complete, they’re forced to begin making payments under a formal repayment plan. Repayment plans fall into two broad categories: (i) those that are indifferent to whether you can afford the payments, and (ii) “income-driven” plans that consider your earnings to try and keep the payments affordable. Today we are going to discuss the first category. Those that are indifferent to whether you can afford to pay are:
- Standard repayments are the simplest, with consistent monthly payments made evenly over a ten-year amortization period (120 payments). This compressed timeframe usually results in larger monthly payments – but lower overall payments – versus other available repayment plans.
- Graduated repayments are similar to Standard repayments, except that the ten-year repayment window is “tilted” to allow for lower amounts in the earlier years, followed by gradually increasing amounts in the later years. So although your own specific earnings don’t factor into the calculation, this plan can be an indirect way to make an income-based repayment.
- Extended repayments are available on either the Standard or Graduated plans noted above, except that the ten-year window is stretched out to between twenty and thirty years. This longer timeframe will result in lower monthly payments – but higher overall payments – versus a traditional Standard or Graduated approach.
Every situation is unique. To apply for the repayment plans mentioned in this video, go can to www.studentloans.gov, click on “Repayment & Consolidation,” and then select “Apply for an Income-Driven Repayment Plan.” On the next page, select “start application” and follow the instructions. You will need an FSA ID to complete this process, so if you do not have one already, you will need to create an FSA ID before starting the application.
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