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Federal Student Loan Consolidation- Repayment Options
There are a number of options available to
repay your federal student loans. The one you choose will
depend on your income and how much your income is likely to
change in the future. You can change between plans every year
if necessary, sometimes more often. Contact your lender if you
wish to change your federal student loan consolidation repayment
plan.
Let’s discuss the repayment plans |
available for federal student loans.
Standard Repayment Plan
If you can afford this plan, it is the best option
to get your loan paid off as quickly as possible and with the lowest
amount of interest. The standard plan is normally set up for 10 years
or less and will offer the best interest rate of any plan. There is a
minimum monthly payment of $50. If you find a good paying job right out
of college, this plan is probably your best bet. Remember that a
reasonable amount to pay each month for student loans is about 10-15% of
gross income. If your loan payment is 20% or more of your income, you
are probably under financial stress.
Extended Repayment Plan
This option extends your payments out over a longer
period giving you lower monthly payments than the standard. Of course
this means you will be paying more interest over the life of the loan
and thus more for your college education. This plan can pay off your
loan from between 12 and 30 years, depending on the size of the loan.
It only applies to loans over $30,000, and it is not applicable for FFEL
loans from before Oct 7, 1998.
Graduated Payment Plan
If you start out your working career with a modest
income that you expect will grow in the future, this plan might give you
the flexibility you need. You start out with lower payments that get
increased gradually every two years. The minimum payment is $25 per
month, but the minimum must cover at least the interest earned on the
loan, so it could be higher. Also, the payment can be no less than 50%
of the standard plan and no more than 150% of the standard plan.
Income Based Repayment Plans
There are several repayment plan options that base
monthly payments on the amount of income you earn. In general these are
recalculated every year, so you need to provide your income information
for annual review.
These repayment plans have been devised to
encourage people to go into low paying careers like public service. In
fact the Income Based Repayment Plan (IBR Plan) will forgive the debt
that remains after 10 consecutive years of being employed in public
service. This can obviously be a huge benefit.
Other plans include the Income Contingent Repayment
Plan (ICR Plan) for Direct loans and the Income-Sensitive Repayment Plan
(ICS Plan) for loans serviced by FFEL lenders. There are lots of rules
that govern these plans but they have been conceived to allow payments
that people on low incomes or fluctuating incomes can afford. The ICR
and ICS plans also allow the loan balance to be dismissed after 25
years, although the amount forgiven is counted as ordinary income in
that year, so this most likely will result in higher taxes due.
Federal student loan consolidation repayment plans
have been devised over the years to allow former students to have
affordable monthly payments and avoid default. They are also very
flexible and allow borrowers the possibility of changing plans fairly
frequently. Despite this a lot of people owing student loans manage to
default causing enormous problems for themselves with their credit
ratings which takes them years to repair. In other words they don’t
listen to advice given them by parents, councilors and others, and they
just have to learn the hard way. You are advised to be aware of your
options for paying off your federal student loan consolidation, to make
your monthly payments on time, and to pay off your loans and get on with
the rest of your life.
One last comment for those wondering: you cannot
get out of a federal or private student loan by declaring bankruptcy.
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