Types of Student Loan Repayment Plans

There are several types of student loan repayment plans available when you enter repayment. When you initially take out a student loan, you can choose a plan, but you are not held to it. You can change the student loan consolidation plan when you begin repayment. The options allow for some flexibility, which can be good when you are just starting out in a new job or a new career. Even after you start repayment, you can still change the repayment plan with some limitations. Also, there is no penalty for repaying early. So if you choose one that has low monthly payments, don't be afraid of paying more than the minimum. Paying off your loans early is never bad since it will take away that burden of debt that much sooner. Here is a summary of the repayment plans available when you enter repayment:

Federal Student Loan Repayment Plans

There are 4 student loan repayment plans with fixed interest rates to choose from:

* Standard Repayment Plan:

The Standard repayment plan takes the shortest amount of time to repay. The interest is fixed and the monthly payments are fixed at a minimum of $50 for a maximum of 10 years.

* Extended Repayment Plan:

Under this plan the borrower pays fixed monthly payments that are less than the Standard plan. The repayment period can range anywhere from 12 to 30 years depending on the total amount borrowed. While the monthly payments are less, the total amount repaid is greater than the Standard plan because more interest accrues.

* Graduated Repayment Plan:

Another option that might work well for those who expect their income to increase gradually over time is the Graduated Repayment Plan. Rather than a fixed monthly payment for the duration of repayment, monthly payments increase every two years. Similar to the Extended plan, the repayment period varies from 12 to 30 years depending on the total amount borrowed

* Income Contingent Repayment Plan (ICR):

The Income Contingent Plan is more flexible than the other 3 plans because it considers the borrower's adjusted gross income, family size and the total amount borrowed when calculating monthly payments. The repayment period is a maximum of 25 years. Any unpaid portion of the loan at that time is discharged, but taxes must be paid on the discharged amount.

When choosing a student loan repayment plan, consider your financial situation and what it might look like in the future. Paying off your student loans sooner may be the best option for you, but you may have other financial considerations to make and need to keep more of your hard earned money for your current living expenses. Whatever the case may be, look at each plan carefully and consider how it will affect you now and in the future.

For more information on these plans, the Department of Education loan consolidation website is a good resource to check out.

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