Student Loan Repayment Plans

It's easy to forget about your student loans when you're in school. You're enjoying your study and extracurricular activities, and most loans don't require you to make any payments until after you've left school---either with a degree or without. But now that you've finished school and earned that coveted degree, it's time to start repaying the money you've borrowed.

The good news is that most lenders will provide numerous options for repayment, depending on what types of loans you've taken out.

First Things First, Ask the Lender
Who better to ask about your options than the lender who gave you the money in the first place? If you have a federal loan, the loan holder has to give you repayment options. What's more, you're not stuck with the first repayment plan you choose. If you discover that it's just not working out for you, you'll be pleased to know that the loan holder has to allow you to change your repayment plans at least once annually. (But bear in mind that this applies only to federal loans.)

Here are the types of repayment plans available for federal loans:

Standard Repayment Plan
Of the various types of plans, this one has the highest monthly payments. However, the costs are lower in the long run because your total interest payment will be lower. With a standard repayment plan - which is generally the first repayment plan your lender offers - you'll be taking a maximum of 10 years to pay off your educational debt.

Graduated Repayment Plan
This type of plan might tempt you if you're just getting your career off the ground. Why? Because you make lower payments in the beginning, and every few years you payments will increase. If you've started your career at a lower income and can count on getting a raise here and there over the years, this type of loan may be right for you.

How does the graduated plan compare with the standard plan payment? It depends on the lender. However, generally your first payments could be half the amount you'd pay with the standard repayment plan. Then every two or three years, your payments will increase. It can take you anywhere from 12 to 30 years to pay off your educational debt under the graduated repayment plan. And ultimately, this means you'll end up paying more than you would have if you'd opted for the standard repayment plan.

Extended Repayment Plan
Like the graduated repayment plan, an extended repayment plan will require you to make payments for 12 to 30 years, depending on the low amount. This type of plan will allow you to make lower payments for the long term---maybe a good idea if you earned a degree in philosophy and are working as a bartender.

Income-Based Repayment Plan
Speaking of philosophers working as bartenders, there is an option for folks whose pay is low. The income-based plan fluctuates with your income. With this type of plan, your payment amount is determined on an annual basis, and is dependent on your annual income, the size of your household, and the size of your loan. You'll never have to pay more than 20 percent of your "discretionary" income.

What does that mean? If you subtract the poverty level for your household, what's left over is your discretionary income. If you still haven't paid off the loan after 25 years, the government will forgive the remainder of your debt. The caveat though is that you'll have to report this remainder and pay taxes on it.

Private lenders also may offer income-based repayment plans that are like the government's---without the 25-year deal the government offers.

Loan Consolidation
This repayment method can lower your payments by taking several loans and combining them into one, while at the same time extending the period for repaying the loan. This probably will increase the amount of interest you'll have to pay, though if you can combine several loans with a higher rate into one loan, you may end up with a lower rate overall.

Be careful when investigating this option. Don't agree to any consolidation loan without getting a complete understanding of the terms you're agreeing to. You don't want to end up in deeper debt when you think you're saving yourself some money.

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