Student loan payments are not by any means enjoyable, and no one likes thinking about how much money they owe for their education. Thankfully, there are plans available. While there are eight federal student loan payment plans currently, these are the top four in either speed, rates, or money saved. The most important factor, however, is you. Based on your income and your ability at certain rates, there are options available to search through. The big question is which one suits you the best. Here are four of the eight federal plans for student loan payments, and what they can do for you.
The Standard Repayment plan is exactly what it sounds like: standard. This isn’t the Ritz of student loan payments, nor is it by any means a bad plan to consider. This is the option for the ones who want to get their loans out of the way as fast as possible and with the least amount of money lost to interest. The Standard plan takes no longer than ten years to pay off, including interest rates. This choice, however, consistently provides a steady charge every pay period at higher costs. That payment is fixed, so it will be the same every time. It won’t change based on your income, so if you get into financial trouble, there could be problems.
The real catch is the interest. Where other options fall short, this one offers the least amount of interest charged by the time you’re finished. You would be paying what seems like high rates, but the finish line shows yours were the lowest possible since the additional interest charges are so much smaller. After that decade has come and gone, you’ll find a few more dollars in the bank than someone with any other student loan payment plan.
This student payment plan is based on a similar idea to the Standard, but with growth rates every two years. Like the Standard payments, the Graduated payments typically do not take longer than a decade to start and finish. The difference here is in the growth of the payments over that decade. This is a plan meant for someone who is starting out at a low salary that is expected to grow over a number of years. It’s forgiving to graduates at first, and it allows them to come in on entry-level wages to start paying back their loans.
Similar to the Standard, though, this plan cannot be adjusted based on your finances. If you end up struggling with financial hardships, it will be more and more difficult to keep up with your student loan payments. In addition to that, the interest rates are slightly higher than they are with the Standard, so you are not coming out with the most money possible. This student loan payment plan is meant for a person who is assured of their position in a company with a promise of increased wages that can meet the Graduated plan’s demand.
The income options are more flexible based on what you make every month. A set percentage (15% as of 2014) of your paycheck will go to settling your student debt, and if you gain a new position or salary, it can be reconfigured automatically. The payments are never more than what they would be if you were on the Standard plan, and this choice is often the best for people with high incomes who want or need a lower monthly payment.
There are two obvious issues here, however, one being the time, and the other being the interest. This specific student loan payment plan is twice as long as the Standard, landing you in low payments for 20 years. The interest is also much greater: as you pay it back, it will be much more significant than if you were not on an income-based plan. You may well find yourself still paying off the interest after the loan is paid.
This plan is set at even a lower rate than the Income-Based, with only 10% of your income going towards your 20 years of undergraduate study loans. If there are any graduate loans, it is bumped up to 25 years instead, giving you an extra few years to give back what is owed. This plan is ideal for the candidate with high balances and a fairly solid income, and depending on that income, the government can decide whether or not to assist you with the interest fees every month with your payments. While this is a steady option, consider also the downfalls.
Unlike the Income-Based student loan payment plan, the monthly dues can be higher than the Standard plan’s by a significant number. You are also responsible for re-certifying your income and family size every single year for those 20-25 years, and if you miss one year, you’re taken off the PAYE plan immediately. Add that in with the added interest that takes place over that large number of years, and it seems a scarier option than any of the others.