Special for News Messenger
Repayment of student loans is more complex than ever. And considering that the life situations of two borrowers are not exactly the same, finding the best route can prove frustrating for those seeking relief.
“Despite the number of repayment programs available out there, too many borrowers simply don’t understand what they qualify for and, as a result, are delinquent or defaulting on their loans,” said Jessica Ferastoaru, student loan specialist with Take Charge America, a national consultancy agency for non-profit student loans. “With a little homework, borrowers can arm themselves with the appropriate knowledge to select the right plan that meets their individual needs.”
Ferastoaru explains the main types of repayment plans:
- Standard Plan: All borrowers of the federal loan are automatically enrolled in this plan, which requires fixed payments for 10 years. If you can afford payments, it’s your best option to pay off your loans and save on interest.
- Extended repayment: this plan provides for lower payments for 25 years. It’s an interesting option if you can’t afford payments in the Standard plan, but you’ll pay more interest over time.
- Reimbursement based on income: these four plans provide for a limit on payments with a percentage of income – generally between 10% and 20% – and extend the repayment for 20 or 25 years. You need to reapply each year by providing income and family information. Otherwise, you will add unpaid interest to your balance and adjust your income payments to an amount necessary to pay off the loan within 10 years or at the end of the 20 or 25 year period.
- Graduated repayment: a good option for borrowers who expect their wages to rise over the years, payments on this level begin to decrease and increase over a 10-year period.
- It is not the best option if you want consistent and lower payments. But you won’t have the hassle of reapplying every year as an income-focused plan.
- Consolidation: this option combines all your loans with a fixed interest rate and a monthly payment. Consolidation can save you money and simplify the repayment process, but it can also extend repayment terms for decades, depending on the amount of your loans.
- Loan Forgiveness: If you work in a public service with government, army, public schools or nonprofit organizations, you could benefit from a forgiveness program where balances are forgiven after 10 years of payments.
- Other borrowers can benefit from forgiveness on some income-based plans after making payments for 20 or 25 years.
- Depending on the plan, the forgiven balance may be taxable. Furthermore, forgiveness is not guaranteed. You still have to make payments for several years.
Even after evaluating all the options, choosing the best plan can remain a challenge.
Nonprofit student loan advisors can help borrowers determine which repayment option best suits their lifestyle.