Student Loan Debt: Choosing the Right Repayment Plan for Your Lifestyle

Nonprofit credit, student loan counseling agency Take Charge America
breaks down repayment options

PHOENIX–(BUSINESS WIRE)–Repaying student loans is more complicated than ever before. And given
that no two borrowers share the exact same incomes, life goals and
family situations, it can be difficult to determine which path is best.

“Borrowers have to do a lot of homework upfront to determine which
program fits their needs, but there’s work at the backend, too, like
income-driven programs that require them to reapply every year,” said
Sarah Hamilton, student loan supervisor for Take Charge America, a national
nonprofit credit counseling and student loan counseling agency
“Objective advice from a credible third party, like a nonprofit
counseling agency, may be critical.”

Hamilton provides federal student loan borrowers a cheat sheet of common
repayment programs:

Standard Repayment: If you took out federal loans, you’ll
automatically be enrolled in the Standard plan, which requires fixed
monthly payments over 10 years. If you can afford it, it’s your best
option for paying down your loans and saving on interest.

Income-Based Repayment (IBR): Monthly payments are determined by
your income and family size, and are capped at 10-15 percent of a
borrower’s discretionary income. It’s a good option if you’re struggling
with Standard payments or have high debt relative to your income.

Pay As You Earn (PAYE) & Revised Pay As You Earn: These plans
offer two of the lowest monthly payment amounts of all repayment
options. Payments are set at 10 percent of discretionary income and may
increase or decrease each year based on income, family size, tax filing
status and state of residence. Balances are forgiven after 20 or 25
years. Both options require annual recertification, which can impact the
monthly payment as well.

Income-Contingent Repayment (ICR): Monthly payments are
calculated at 20 percent of your discretionary income or the payment
amount on a 12-year fixed repayment plan – whichever is lower. It’s
easier to qualify for this program since there’s no income eligibility
requirement, but ICR payments may end up being higher than the Standard

Direct Consolidation: These loans combine multiple federal loans
and offer a fixed interest rate based on the weighted average of the
interest rates of the loans you’re consolidating, which could save you
money and simplify the repayment process. However, it will also extend
the repayment terms.

Graduated Repayment: With this program, payments start lower and
increase over time, and have a 10-year term. It’s a good option if you
expect your salary to climb as you progress in your career. Though this
plan isn’t usually the best option compared to income-driven programs,
it might be the right fit for you – especially if you don’t want the
hassle of reapplying for an income-driven plan yearly. You can also
consolidate and extend the terms up to 30 years.

Extended Repayment: The term of this loan design is extended to
25 years, meaning monthly payments are lower. It’s an attractive option
if you can’t afford the payments on the Standard plan – but you’ll pay
more in interest over time.

Public Service Loan Forgiveness: You may be eligible for this
program if you work a full-time public service job with the government,
military, public schools or 501(c)3 nonprofits. It can forgive any
balances on federal loans after 120 qualifying payments.

Nonprofit student loan counselors can help borrowers determine which
repayment option fits best with their lifestyles. Learn more at
or call (877) 784-2008.

About Take Charge America, Inc.

Founded in 1987, Take Charge America, Inc. is a nonprofit agency
offering financial education and counseling services including credit
counseling, debt management, student loan counseling, housing counseling
and bankruptcy counseling. It has helped more than 1.6 million consumers
nationwide manage their personal finances and debts. To learn more,
or call (888) 822-9193.


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