Your four options for repaying student loans
It’s May and college campuses are filled with graduates walking down the aisle to claim their degrees. But for many, the pomp and circumstance means it’s also time to face student loan repayment. In fact, three out of four students leave school with some student loan debt.
According to the Institute for College Access and Success, graduates face an average student debt of $28,400. The good news is that many loans come with a six-month grace period, so you can get on your feet before you need to start paying them back. But when it comes time to face the bill, it can be intimidating and confusing. Luckily, BetterMoneyHabits.com breaks down the options for student loan repayment.
Option 1: Pay ahead of schedule
Your student loan servicer will provide you with a repayment plan, which you will need to pay monthly. But if you have the money available, consider paying more than what is due each month. The advantage of paying more is that you spend less in interest over time. The sooner your loan is paid off, the less you owe.
Option 2: Pay on schedule
Many students choose to pay back their loan over a 10-year standard or graduated plan. By default, you are placed into a 10-year plan where your monthly payment is the same each month.
You also have the option of selecting the graduated plan, where you payments start small and increase every two years. This may be a good option if you think you will earn more as you gain more experience in your career. Because you pay less per month initially, the downside is you pay more interest than with the fixed-price plan.
Option 3: Pay based on income
If you are unable to afford the monthly payments of a standard 10-year schedule, you may be eligible for income-based repayment. If you are eligible, your affordable monthly payment is determined by how much you earn. But since you are paying less per month, it will take you longer to pay off your loan in full. You will accrue more interest in the process, which means your total paid will be higher.
Option 4: Delay payment
If you are unable to afford any payments at all, you can apply for deferment or forbearance. You may be eligible for forbearance and deferment, where you temporarily put off repayments, if you are facing economic hardship or continue your education.
Your four options for repaying student loans: http://bit.ly/1WFYzUY v/ @AmericaSaves @
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- Written by Madeline Daniels
- Category: Blog
- Published: 03 May 2016