Best Student Loan Payment Methods To Free Your Finances
Student loans are essential for some to finish a degree. But at the same time, they become an issue once you enter the point where you need to pay them. Hence, even if you are no longer within the academic walls, you still have to deal with them. And sometimes, they can become long-term financial problems.
Numerous repayment options are available for federal student loans. However, we consider that the best route is somewhere between income-generated payment and standard payment. Of course, your goals and preferences still matter here.
You can also reduce the amount that you need to pay through extended student and graduated student loan repayment plans. These payment options are not based on your income. However, keep in mind that they have minimal benefits as compared to income-driven repayment plans. But at the same time, they are the ideal route if you are earning big or have a stable income.
Low-Interest Payment Method
The standard student loan repayment plan will require you to pay equal amounts monthly for ten years. If you can afford to take this plan, then you should do so. After all, it will lessen your interest. Aside from that, this option will help you clear your student loan faster than other repayment strategies.
Fortunately, it is easy to enroll in this plan. The standard plan comes once you enter this repayment option.
Low Payment Option For Student Loans
The federal government provides four income-driven repayment options for any student loans. They are the following: income-contingent repayment, income-based repayment, Revised Pay as You Earn (REPAYE), and Pay As You Earn (PAYE). All of these repayment options are great if your income is not that big to avail of the standard repayment option.
Always remember that income-driven plans will set your monthly payment between 10 percent and 20 percent of the discretionary income. In fact, payments can go as low as $0 and can be altered annually. Moreover, these repayment plans will cause your loan to extend from 20 years to 25 years. Once you reach the end of the payment plan, all of the loan balances can be cleared. But at the same time, you will have to pay the equivalent taxes of the forgiven balance.
Before you change the repayment plan of your student loans, you have to put all the needed information in the Loan Simulator of the Education Department. This particular calculator will enable you to see the estimated amount you need to pay for your selected plan. Keep in mind that all payment options that lower your monthly payments would likely increase the interest rates.
There are ways you can enroll in any of these income-driven plans. You can apply at the site “studentaid.gov” or through a student loan servicer. Each time that you apply pick a plan that will give you the lowest monthly payment rate. It is the best choice in most situations. However, you might still want to assess things if the status of your tax filing is “married filing jointly.”
What If I Earn Big But Still Want Income-Driven Repayment?
If your current income is big and stable, but still want to avail low monthly repayments, then the graduated student loan repayment plan is quite suitable for you. This particular method will decrease your payments initially. It can go as low as the interest being accrued on your loan. After that, the amount will increase every two years so that you can finish paying in ten years.
If your income is deemed higher than your loan, it is possible that you will pay smaller under this plan than a standard income-driven repayment plan. Of course, this would help you loosen your financial constraints in the short term. In turn, this will help you jump to other financial goals, like downpayment for a new home, without having to deal with excessive interests. But of course, you are still required to pay bigger interests in an income-driven repayment plan than a standard payment option for student loans.
Furthermore, keep in mind that the initial payment for a graduated plan can have a triple size. Therefore, you need to be confident that you can deal with these huge amounts if you are going to this route. Overall, it is still better than you to stay on the standard plan if you can just deal with it.
I Want To Make Payments That Doesn’t Change Annually
If you simply want to settle on predictable amounts for student loan payments, the extended student loan repayment is the best option for you. This plan will lower the amount that you need to pay by stretching the payment period to 25 years. Bear in mind that your student loan must have a balance of $30,000 so that you can qualify for this payment method.
You have two options here. First, you can pay the same amount monthly, which is similar to a standard repayment plan. Second, you can decide to adopt graduated payments. Regardless of which of these routes you choose, you will be given a clear idea of how much you are going to pay monthly.