Student Loan Repayment Options
We have talked about Student loan repayment quite a bit. Some of the articles that come to mind are the student loan employment repayment, Perkins loan repayment amongst many others. In this article, let us look at what your repayment options are when it comes to student loans. Looking at your repayment options might be especially helpful when it becomes difficult to make those loan payments and a default is staring at you in the face.
As with all types of loans it is best to work with your lender on repayment options prior to having missed any payments. Stepping forward and not only taking responsibility for the situation but also showing the lender that you are planning ahead and are foreseeing a problem. This shows them that you are responsible and that you intend on following through with any agreements you make. Prior to default your repayment arrangements are made with a department within the lender that wants to work with you and is focused on customer service. After default you are always forced to work with the lender’s collections department and the collections department is not as friendly nor are they willing to “help” in any way. The collections department simply wants to collect payments.
The following is a brief summary of federal student loan repayment options. It is important to note that if you have a Perkins loan or a private loan that there are different options that relate to each of these. To make some of the options and exceptions consult this outline:
- Direct Loan
- Same as the options available for the Federal Family Education Loan (FFEL).
- The Exception is the Direct Loan Income Contingent Repayment Program (ICR).
- Public service forgiveness program is available.
- PLUS Loan
- Similar options to other loans with some exceptions.
- Primary exception is the income based” options such as ICR and income based repayment (IBR) cannot be used with Parent PLUS loans.
- ICR & IBR are available to Graduate PLUS Loans.
Traditional Repayment
This is also referred to as the standard repayment plan. This is the default plan should you fail to select another option. Under this plan the loan can be amortized at a term between 5 and 10 years. This is also the payment option that is automatically applied to all FFEL loans should you not respond to their request for you to select a repayment plan within 45 days of their requesting you to make a repayment plan selection. Under this plan you will pay off the loan faster than any other available option but you will also have a payment that is higher than the other options.
Extended Repayment
This student loan payment option allows you to amortize your loan over a longer period of time than traditional options. The extended repayment option allows the term of the loan to go up to 25 years. It is only offered to those that owe over $30,000 in any one particular type of loan. Borrowers that have a FFEL, a Direct Loan, or both you need to have an outstanding balance of $30,000 or more in each type of loan in which you wish to utilize the extended repayment option.
Graduated Repayment
This option is designed to be used by those that expect to have an increase in earnings over time. The loan payment amount is increased every two years for the life of the loan. The maximum term for a traditional graduated repayment option is ten years. If you owe more than $30,000 and you qualify for the extended repayment option you may be able to use the graduated repayment option in conjunction with the extended repayment option.
Perkins Repayment
The Perkins loan has its own set of rules with regard to repayment. With the Perkins loans the minimum payment is listed in the law that allows for Perkins loans. As a result, the school that offered the loan is limited in the repayment options they can use. There are special circumstances that qualify for special repayment treatment such as for those that are sick, unemployed, or are considered low income. For Perkins loans it is best to seek counseling from the issuer in order to determine all of the available Perkins Loan Repayment options.
Income Based Repayment Options
There are two primary Income Base options when it comes to student loans. The first is the Income Based Repayment option (IBR). With this option your payment will be relative to your income. This is particularly useful for those that have a low income. If you are a high income earner, the resultant payment for this option can exceed the traditional repayment option. Though it does allow a lower payment for those at a high income that also have high debts. This option was designed for those at lower income levels.
The second income based option is the Income Contingent Repayment options (ICR). This option is only available to Direct Loan borrowers. Under this program your payment will never be more than 20% of the amount of income that you are earning above the federal poverty guidelines. This program is designed for those that have a low income. If you pay this low payment for 25 year, the remaining loan balance will be forgiven.
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