Today, it's not uncommon for recent college graduates to also graduate with student loan debt. If you're like many other new graduates, you may be wondering what happens next with your student loans after you graduate and start working in the "real world." After you graduate, you're automatically granted a six-month grace period before your monthly payments begin. What happens after those six months end, and what repayment plans are available to you.
Here are the seven most common repayment plans for federal student loans and the pros and cons of each:
- Standard: With the standard repayment plan, you pay a fixed amount every month until your loan is paid in full. According to the Federal Student Aid website, your monthly payments will be at least $50, and you have up to 10 years to repay your loans. The standard repayment plan is ideal for someone who can afford a higher monthly payment. Although your monthly payment will be higher than with a different plan, you'll be able to repay your loan faster.
- Graduated: When you choose the graduated repayment plan, your payments start low and increase every two years. Like the standard repayment plan, your loan will still be paid off within 10 years. If you expect that your income will increase gradually over time, which is true for many recent graduates, the graduated repayment plan may be a good choice for you. The downside is that you'll pay more interest over the lifetime of your loan compared to the standard plan.
- Extended: To qualify for the extended repayment plan, you must have more than $30,000 in Direct Loan debt. Under this plan, you have 25 years to repay your loan, and you have two payment options: fixed or graduated. Fixed payments are the same amount each month, while graduated payments start low and increase every two years. Since the repayment period is 25 years, this plan is deal for people who need to make smaller monthly payments.
- Income-based: Under the income-based repayment plan, your required monthly payment will be based on your income during any period you're having a financial hardship. Monthly payments are capped at 15 percent of your discretionary income, and your monthly payment will be adjusted annually. If you make regular payments, you may be eligible to have any remaining debt forgiven after 25 years.
- Pay as you earn: With the pay as you earn plan, your monthly payments are capped at 10 percent of your discretionary income. Your payments will be readjusted each year based on income and family size. You also must qualify for partial financial hardship in order to be eligible for this plan. If you make regular payments, you could have the remaining debt forgiven after 20 years.
- Income-contingent: The income-contingent repayment plan gives you the flexibility to meet your payment obligations without causing undue financial hardship. Each year, your monthly payments will be calculated based on your adjusted gross income, family size, and the total amount of your loan. The maximum repayment period for the income-contingent plan is 25 years, and if you haven't fully repaid your loans after 25 years, the remaining balance will be discharged.
- Income-sensitive: The income-sensitive plan is an alternative to the income-contingent plan and is ideal for people with loans that don't qualify for the income-contingent plan. Your monthly payments are based on your annual income and will be between 4 to 25 percent of your monthly gross income. The only stipulation is that your payment must be greater than or equal to the interest that accrues during the month. The downside to this plan is that it's only available for up to five years, and after that time, you must switch to another repayment plan.
There are many options available to you when it comes to managing your student loan debt, and it's all about finding the plan that works best for you. If you need assistance on how to handle your student loan debt, the Dellutri Law Group has solutions for you! Contact us today for a free, no-obligation consultation! Call us at (800) 391-4337 or Request a Free Consultation online. Our team of dedicated attorneys and staff are here to help!