There are many different repayment options available for student loans. This ultimately depends on the type of student loans and loan providers.
If you find yourself struggling to understand what the different repayment options actually entail, then you’ve come to the right place!
This brief guide will help you understand the types of repayment plans and which ones could work for you.
Fixed Monthly Repayment Plans
In a nutshell, fixed monthly repayment plans give you clarity on the exact amount of money you’ll need to pay each month. This is a good option for those with steady income because you can set aside that amount regularly.
One of the first things you should do is to use a student loan repayment calculator to analyze the amount you might have to pay monthly.
With a student loan repayment calculator, you include information about the interest rate and get an estimate of how much your fixed monthly payments could be.
Typically, the monthly amount could range from $300-$400 depending on your degree and loan provider.
Make sure you know how much your monthly repayments are before agreeing to the student loan terms.
The monthly amount should also be something you’re comfortable paying because defaulting will hurt your credit and affect your ability to secure new loans in the future.
Interest-Only Repayment Plans
If you want to get a head-start on repaying your student loans, some loan providers give you the option to pay interest-only payments while you’re still in school.
This payment plan is used before you graduate and during your grace period post-graduation.
This really depends on your financial situation and your loan provider, but it’s still a good option to consider because you could get an interest rate discount of up to 0.35%.
For this kind of repayment plan, you pay off the interest rates before the official repayment period begins. This is the only way to make your interest rate discount last throughout your repayment period.
Interest-only repayment plans are best suited for students who have income while they’re still in school to pay off accrued interest before graduation.
But don’t get too excited about this plan, make sure to check your eligibility, terms, and conditions before choosing this repayment plan.
Deferment Repayment Plans
If your employment opportunities are non-existent, and it looks like you can’t afford to repay student loans for a few years, then you should consider using a deferment plan.
Deferment repayment plans allow you to press pause on the loan for up to three years (depending on the loan provider) but this does not lead to loan forgiveness. Depending on your loan provider, you’ll have to apply for a deferment plan because not everyone qualifies for one.
Key things to remember:
- Subsidized loans do not accrue during the deferment period
- Unsubsidized loans do accrue during the deferment period and are added to your entire loan
- Deferment repayment plans are not a guarantee because not all loan providers offer it
Income-Driven Repayment Plans
Federal loans have an option for income-driven repayment plans, but not all other loan providers offer this type of plan.
For those who have federal student loans, this repayment plan was designed to be affordable for you. It’s based on your monthly income and family size.
This means that you’ll generally pay 10% of your discretionary income which is quite manageable for those who have big families and low income.
Keep in mind that though it is affordable, this kind of repayment plan could extend payments for up 20-25 years, yet you can cut that in half if you use a different plan.
There’s a lot to consider here, so make sure that you know what repayment plans your loan provider offers before agreeing to a student loan. This will save you headaches in the future!
Pearl M. Kasirye is a writer at Pearl Lemon, editor, and researcher who spends most of her time reading. When she isn’t reading or working, she can be found sitting on her balcony writing her own novels or traveling.