College has become increasingly expensive and that means more of us are leaving college carrying a hefty load of student loans. Sure, we have a six month grace period before payments need to be made but that period can fly before when you’re looking for a job, finding a place to live, and basically starting your adult life. The good news is that more repayment options are available now to meet the changing needs of college graduates, especially facing some tough financial times. Currently, four options are available for federal student loans. Your options may be more limited with private loans.
Standard & Extended
The standard payment plan is what you’ll be placed on initially. Under this plan, you’ll pay a certain amount each month based on how much you owe in total. The entire loan is repaid within ten years under this plan so you could be facing pretty hefty monthly payments if you owe a lot of money. No matter what happens the payments will not change but they will be at least $50 per month.
The extended payment plan is similar. However, you get to pay off your loan over 25 years instead of 10 years. That does mean you’ll end up paying a lot more in interest but you will have lower monthly payments. Another nice thing about the extender repayment plan is that you can choose between a fixed amount or a graduated amount. The latter is discussed in more detail.
Graduated
Whether you choose a 10 or 25 year repayment plan, graduated payments are an option. Basically, this means the payments will start out lower and will gradually increase in amount over the repayment period. The idea behind this approach is that you’ll be earning a lot less when you begin paying back your student loans than when you near the end of repayment, hopefully.
Income Contingent
The newest option for federal student loans is the income contingent plan. This plan looks at your specific family income levels based on your federal tax returns and determines your monthly payments. You can use a number of online calculators to determine how much you would pay using this method. One of the best things about this plan if you don’t anticipate earning a lot of money at any time during your career is that if you do not pay the entire loan within 25 years the balance will be discharged. You will, however, be expected to pay taxes on any amount that is discharged.
Remember that no matter which repayment option you choose now, you can always switch by contacting the holder of your loans. If you have trouble making your payments, deferments and forbearances are also options available to help you.
