When it comes time to repay your student loans, there are several repayment options, but there are a few things you need to know first…
- How much do you owe and to whom? Your first step is to contact your student loan lender or servicer to find out how much you owe, when repayment begins, and the repayment terms. If you do not remember who your lender is, visit the National Student Loan Data System (NSLDS) at www.nslds.ed.gov to find your loan provider’s name and contact information. You will also be able to view a detailed list of the loans you have borrowed while in school.
- How much can you afford to pay each month? In general, education lenders recommend that student loan payments not exceed 8-10 percent of your gross monthly income. For example, if your annual income is $35,000 generally you can afford monthly student loan payments of no more than $233-$292.
Loan Repayment Plans:
- Standard or Level repayment - the most common and typically the least expensive option in terms of total interest costs. This plan provides a fixed monthly payment of at least $50 over a period of up to 10 years. If your monthly payments under this plan exceed 8-10% of your gross monthly income, you might want to consider one of the other repayment options below or loan consolidation.
- Graduated Repayment – monthly payments start low and increase over time. This may be a good choice if you have a limited income to start, but expect higher earnings in the future. The maximum repayment under this plan is 10 years. Total interest costs are higher with this plan than with standard/level repayment.
- Income-sensitive repayment – payments can be adjusted up or down annually to account for changes in your income. The repayment period of 10 years can be extended to 15 years under a special forbearance provision. Total interest costs are higher with this plan than with standard/level repayment.
- Extended repayment – available only if you did not have a balance on a federal student loan as of October 7, 1998. It is only available if your outstanding education loan balance is more than $30,000. Under this plan, you may reduce the amount of your monthly payment by spreading payments over a period of up to 25 years. You may choose to make payments over this extended period under a level or graduated schedule. Because payments are stretched over a longer term, total interest costs are higher than under the other repayment plans.
- Loan consolidation – allows you to bundle all of your federal education loans into one convenient single monthly loan payment at a fixed interest rate. Depending on your total outstanding loan balance, you may also be able to extend your repayment period and lower your monthly payments. By extending your payment period and making smaller payments over a longer period of time, you will most likely pay more total interest. For additional information about loan consolidation, visit Sallie Mae at www.smartloan.com/student.
The following websites provide additional information about managing your student loans and loan repayment: