For the average graduate, you are enrolled in the Standard 10-Year Repayment Plan following the end of your post-graduation deferment period. This plan takes your balance owed, plus interest and divides it over 10 years to calculate your flat, unchanging monthly payment. For some, this plan allows for easy to manage and budget for payments. For others, this repayment option requires more of a payment than can be affordable, so what are your options to avoid defaulting on your federal student loans?
The Graduate Repayment Plan maintains the 10-year plan of the Standard Repayment Plan but the amounts in the initial years are much lower; however, over the length of the repayment term, the required monthly balance increases. The graduated increases occur every 2 years, so this plan does allow you to plan ahead for the larger payments to avoid being blindsided. By the end of the term, the payments are much higher than that of the Standard Repayment Plan. Often a great selection for someone who expects to make more money as more time in their current employer passes.
- Consistent Lower Payments
The Extended Repayment Plan is available to borrowers with Direct Loans of $30k or less. It takes your current payment term of 10 years and stretches it across 25 years—making your payments consistently smaller but for much longer. Another option to have lower payments is to consolidate your federal student loans—some terms are 30 years long; the longer terms often correlate to smaller monthly payments.
- Income-Based Payment Options
There are four options provided by federal student loan providers that fall under the income-based category: Pay As You Earn, Revised Pay As Your Earn, Income-Based, and Income-Contingent. With each of these options, your payment will never be higher than 10-20% of your discretionary income (depending on which of the four you go with). Also, the repayment term is often 20-25 years in length; while this is longer than the Standard Repayment Plan, any remaining balance after this term is forgiven. This category is the repayment plan option you want to be on if you are interested in Public Service Loan Forgiveness.