student loan repayment

When students take out loans for education, they need to pay special attention to their repayment plans. Loans provide financial support to students who want to obtain higher education, but at the same time, they burden them with years of debt.

A student’s repayment plan defines the monthly payment amount, the duration of the loan as well as the interest rate.

The longer the term of the loan, the more interest the borrower will pay in total. A borrower’s immediate costs may reduce with a long-term loan, but their overall cost may be much higher.

Let’s look at some of the repayment options that are offered to student loan borrowers:

Standard Repayment Plan

The Standard Repayment Plan is the default plan for student loans.

In a standard repayment plan, the loan needs to be paid back over a 10-year period. Compared to other payment plans (incomed-driven and extended plans), standard repayment plans offer a lower interest rate.

There are two types of standard repayment plans:

Standard/Level: Monthly payments remain the same over the course of the 10 year loan.

Graduated:  Here, the student begins by paying a lower monthly payment and, over time, the monthly payments increase. This allows students to settle into their careers without being burdened with a large monthly payment; as their career progresses, they are more capable of making larger monthly payments.

When the repayment plan first begins, the monthly payment goes toward interest and NOT the principal amount.

Extended Repayment Plan

student loans

If a borrower has a direct loan or a FFELP and has a balance greater than $30,000 then an extended payment plan can allow them to lengthen the duration of the loan from 10–25 years.

Borrowers looking to reduce monthly payments should consider this option:

There are two types of extended repayment plans:

Extended Graduated: In this version of the plan, monthly payments start low and then increase every 2 years. This is best for those who may not currently have a steady income but expect to earn more over time. At the beginning of the plan, the monthly payments go toward interest and not the principal amount.

Income-Driven Payment Plans

In these plans, the monthly payments are primarily dependent on the borrower’s income. At the borrower’s income increases, so do their monthly payments.

They monthly payment is also impacted by the size of the borrower’s family and the kind of loans they have taken out. To be eligible for these plans, the borrower should be ready to share information related to their income and related financial history including tax returns.

To retain these plans, borrowers must submit accurate information related to taxes every year.

Can’t decide what repayment plans is best for you? Let our loan specialists guide you in making an informed decision.

At American Student Services we aid student loan borrowers with repayment plans, refinancing, loan consolidation and student loan forgiveness.

Contact us for more information on our services.