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Today we begin our series on Student Loans, written by Sader Law Firm attorney Megan Dennis.
PART 1: REPAYMENT
You have a choice as to what repayment plan to enter for your student loans. While most people choose a plan when their student loan repayment commences, you can change the plan at any time. Your student loan servicer will have the most information as to what plans are available to you and can give you the information on how to make a change to your payment plan.
So how do you know which repayment plan to pick? There are lots of factors to consider, including the length of the repayment, what types of loans you are repaying, what the monthly payment amount is, and the amount of interest you will pay over the life of the loan.
The most common types of repayment plans are as follows:
- Standard Repayment: Available for Direct subsidized and unsubsidized loans, subsidized and unsubsidized Federal Stafford loans, and all PLUS loans (including parent-PLUS loans). Fixed payments of at least $50.00 per month last up to 10 years, resulting in less interest paid over the life of the loan than under other plans.
- Graduated Repayment: Available for Direct subsidized and unsubsidized loans, subsidized and unsubsidized Federal Stafford loans, and all PLUS loans (including parent-PLUS loans). Payments begin lower, and increase over the life of the loan (usually every two years) for a duration of up to 10 years
- Extended Repayment: Available for Direct subsidized and unsubsidized loans, subsidized and unsubsidized Federal Stafford loans, and all PLUS loans (including parent-PLUS loans). Payments vary and can be fixed like they are in the standard plan or start low and increase like they are in the graduated plan. The plan lasts up to 25 years.
- Income-Based Repayment: Available for Direct subsidized and unsubsidized loans, subsidized and unsubsidized Federal Stafford loans, PLUS loans made to students (not parent-PLUS loans), and consolidation loans that do not include parent-PLUS loans. You must show a partial financial hardship to be eligible for repayment under this plan. Payments are calculated by subtracting your adjusted gross income from 150% of the poverty guideline for your household size in your state of residence. That number is then multiplied by 15% to calculate your monthly payment. Payments adjust as your income changes and repayment under this plan can last up to 25 years. After making 25 years of payments, the balance of the loan will be forgiven; however, the forgiven amount may be considered taxable income.
- Pay As You Earn Repayment: Available for Direct subsidized and unsubsidized loans, Direct PLUS loans made to students (not parent-PLUS loans), and Direct consolidation loans that do not include parent-PLUS loans. You must show a partial financial hardship to be eligible for repayment under this plan. Additionally, you must be a new borrower on or after October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. Payments are calculated by subtracting your adjusted gross income from 150% of the poverty guideline for your household size in your state of residence. That number is then multiplied by 10% to calculate your monthly payment. Payments adjust as your income changes and repayment under this plan can last up to 20 years. After making 20 years of payments, the balance of the loan will be forgiven; however, the forgiven amount may be considered taxable income.
- Income-Contingent Repayment: Available for Direct subsidized and unsubsidized loans, Direct PLUS loans made to students (not parent-PLUS loans), and Direct consolidation loans. Payments are calculated by subtracting your adjusted gross income from the poverty guideline for your household size in your state of residence. That number is then multiplied by 20% to calculate your monthly payment. Payments adjust as your income changes and repayment under this plan can last up to 25 years. After making 25 years of payments, the balance of the loan will be forgiven; however, the forgiven amount may be considered taxable income.
- Income-Sensitive Repayment: Available for subsidized and unsubsidized Federal Stafford loans, FFEL (Federal Family Education Loan) PLUS loans, and FFEL consolidation loans. Payments are calculated by the formula specific to the individual lender, but is based on annual income, and does adjust as your income changes. Payments are made under this plan for up to 10 years.
