Do You Have a Federal or Private Student Loan?

Do You Have a Federal or Private Student Loan?

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Student Loan Extended Repayment Plans

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Neither private nor federally backed student loans may be discharged in a bankruptcy filing. If the options outlined above are not right for you, you might want to consider various repayment options.

If you have a school-issued loan (like a Perkins loan), you should ask your school about any repayment options that are available to you.

If you took out a loan from a private lender (such as a bank), you might be limited in your repayment options. Whatever the case, it is not wise to wait until your loans go into default payday loans in Indiana before trying to figure out a solution. If you wait, some of your options may expire.

Also, keep in mind that the holder of your federal loan must allow you to change your repayment plan at least once a year.

Options discussed in this article are mostly limited to federal student loan repayment. If you are unsure what types of student loans you have, visit the National Student Loan System Website or call 1-800-4-FED-AID.

Standard Student Loan Repayment Terms

Although the monthly payments may be higher if you go with a standard repayment plan, it is still probably the best option for you if you can afford it. Because you will be paying more upfront, you will likely pay less interest in the long run.

Under a standard loan repayment plan, monthly payments are determined by the loan amount. However, you can expect to pay roughly $125 per month for every $10,000 you took out in student loans. Using a standard repayment plan, you will be making payments for a maximum of ten years.

Graduated Repayment Plan

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Unlike a standard repayment plan, if you choose a graduated student loan repayment plan, your monthly payments will increase as time goes by. Usually, your monthly payments will increase every two to three years. However, just like a standard repayment plan, your loan must still be paid off in a maximum of ten years.

If you choose a graduated repayment plan, you can expect to pay more for your loan in the long run. You will be paying more in interest than you would under a standard repayment plan.

Income-Based Repayment (IBR) 101

If you have had a tough time finding a well-paying job out of school, then you may want to look into an income-contingent student loan repayment plan. This is sometimes called a “pay as you earn” plan.

Your annual income will determine the cost of your monthly payments. Suppose you are married and file a joint income tax return. In that case, you will have to use your joint income to determine the amount of your monthly payments under an income-based repayment plan.

Direct Federal Student Loans: Income-Sensitive Repayment Plans

Most direct student loans from federal student aid are eligible for income-based repayment plans, excluding PLUS loans. Your annual payment will vary based on your income, but it will never exceed 20% of your discretionary income.

Your discretionary income is calculated by your annual gross income minus the amount based on the poverty level for your household size.

If you have a very low income, your income-based repayment plan may not require you to make monthly payments at all. If you make payments, they may be less than the interest that your loans accumulate each month. Although this may seem like a big break, it could hurt you in the long run as you may end up paying much more on your loans than you would otherwise due to the accumulating interest.

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