Student Loan Repayment Plans – Pros And Cons

Four steps to get your best student loan repayment deal. First, figure out how much you can afford to pay every month. With a student loan repayment calculator, use an online student loan calculator or your bank’s student loan calculator. Use a student loan repayment calculator to calculate the minimum amount you must pay every month until you reach a specific goal. Also, change your repayment plan or renegotiate if your financial circumstances change. For example, if you are planning on getting married in the future, consider switching to a longer mortgage term.

Don’t forget to include borrowing for your children’s education. Most college costs require at least two years of school. Most student loan repayment plans have a minimum standard payment for each of those years. The federal government has a calculator tool for the cost of going to school using the FAFSA (Free Application for Federal Student Aid) and then assumes the family’s income. There are also private loans, grants, and scholarships that could be used to help defray costs.

Calculate how much student loan repayment plans cost. This includes both the cost of borrowing the money and the interest you will pay every month. To figure this out, take the minimum federal student loans you know and add them all up. Then multiply that number by the number of years you plan to borrow. The number you get will be your student loan repayment plans’ regular interest rate.

Calculate the value of forgiveness. The federal government offers student loan forgiveness programs to borrowers who finish school and meet other requirements. Some plans forgive the principal and a portion of the interest on subsidized and unsubsidized loans. Others grant forgiveness on subsidized and unsubsidized Stafford and Perkins loans and subsidized and unsubsidized Direct Loans. There are no federal forgiveness plans at this time.

Evaluate eligibility. You will need to get a thorough assessment of what IDR private student loans to qualify for. The Sallie Mae Plus program does not count subsidized and unsubsidized Stafford loans toward your debt consolidation. The Direct Loan program counts all of your federal student loan repayment options. For example, you may qualify for an unsubsidized loan if you have exhausted all of your existing subsidized loans. A Perkins Loan is used for students with low interest rates and for students with special needs.

Look at income and assets. The government will ask you for two sets of information: your AGI and your SSI (Social Security) income. This information is used to calculate your monthly gross income and determine your qualification for different repayment plans. It is also used to calculate your eligibility for standard deductions and personal exemptions. You may choose to use the standard deduction instead of the SSI income if you have enough to qualify.

Look at duration. A four-year repayment period makes more sense if you plan on staying in school. If you are planning on working while you are in school, a six to twelve month standard plan makes more sense. In general, the longer you make payments, the lower your payments will be when you graduate. If you are planning on using federal loans to finance your education, a twelve-month standard plan makes more sense.

Other options. There are also options beyond the standard repayment plans. One option is to have a deferment or forbearance while you are going through the school years. Another option is to pay a higher interest rate while in school because federal loans are subsidized, and thus interest rates are lower while you are in school.