If you have student loans to repay, then you are probably concerned about the monthly payments. You may be wondering which repayment plan could be best for your current financial circumstances. While there is no one-size-fits all approach, some repayment plans are better than others. This article will take a closer look at the various repayment models and which ones should be considered for your situation.
1. Income-Based Repayment
Borrowers with federal student loans have the option of paying only a percentage of their discretionary income toward their student loan debt. It is also possible to pay a fixed amount each month, which is set according to your gross income and family size. You will be required to make payments until your debt is paid in full.
2. Pay As You Earn
Eligible federal borrowers may choose to repay their student loans at an interest rate of 10 percent for the first three years and then continue to make payments based on their adjusted gross income. If you have family income below 150 percent of the federal poverty level, you may be eligible for a lower payment amount. The remaining balance will be paid off in 20 years or less.
3. Graduated Repayment
If you have a high amount of student loan debt, this plan may be the best fit for your financial situation. You will make payments that increase over time, but the largest monthly payment will not be due until after 10 years. This plan offers you more breathing room in the early years of repayment and could help you to reduce your total interest costs in the long run. This repayment model is available for all federal student loans.
4. Income-Contingent Repayment
This plan is similar to the Income-Based Repayment Plan. You will make payments that are based on your gross income and family size. However, in the event that your income falls above a certain level, your monthly payment will increase to a greater amount. This plan is available for private student loans and some federal loans.