Student loans are stressful. Many people who try to manage student loan debt on their own have difficulty. Every situation is different. That’s why we want to help you with information and tools to repay your student loans without getting overwhelmed. There are a three main steps you can take right now to create a student loan repayment plan.
The first step is to find your loans.
Sounds tough, but should only take a few minutes to discover. There are two broad classes of loans – government and private.
- Government loans – issued or guaranteed by the federal government. Easier to track and better options for repayment.
- Private loans — issued by a private lender. A bit harder to track and fewer repayment options available.
You can find your government loans by going to the National Student Loan Data System, click on Financial Aid Review and create a Federal Student Aid ID. If you already have an FSA ID, you can access your info in the NSLDS to find out where your government loans are, and other status information. You can find your private loans by getting a credit report through Annual Credit Report.com. Click “Request your credit report” and complete the information. Running your credit report is good idea even if you think all your loans are federal loans. Any loans that show up on your credit report, but not on National Student Loan Data System are private loans. Check any documents you receive from your servicer/collection agency. They can provide important information regarding your repayment options. Once we know where the loans are, the next step is to determine the status of each loan.
The second step is to find out what the status of the loan is.
For government loans the NSLDS website will tell you the status, loan balance, loan type, interest rate and current loan servicer. Or, the loan servicer or collector can provide additional info. You’ll first see a general listing of your loans. Each loan is numbered in the left column. Click on that number and you’ll see the details of that loan. For private loans, talk to the servicer (or collector if loan is in default) and ask about the status of the loan. Once you know where your loans are and what their status is you can move to the final step.
After you determine where your loan is held and check the status of the loan, you can explore your repayment options.
There are numerous options for student loan repayment including:
- Standard Repayment
- Graduated Repayment
- Extended Repayment
- Income-Driven Repayment
Standard Repayment (or Vanilla) This is the no frills, right out of the box option. It’s easy to understand & anticipate and may work well for many borrowers. Most operate on a 10 year term to repay principal & interest.
Advantages: Quick payoff, least amount paid in interest.
Disadvantages: Pretty large monthly payment, especially at the start of borrower’s professional career
Graduated Repayment (or the Slow Start) This is the option allowing you some time to get established. Most operate on a 10 year term, but payments start lower and increase every 2 years.
Advantages: Smaller initial payment acknowledges lower income at career start
Disadvantages: From year 6 on, payment will be higher than on Standard plan. Pay more in interest overall
Extended Repayment (or the “10 years? You’re kidding me?” option) This option provides more flexibility, but with a higher overall cost. Most operate on a 25 year loan term and can have fixed or graduated payments allowing some time to get a career started.
Advantages: Lower monthly payment than Standard
Disadvantages: Higher overall loan costs.
Income-Driven Repayment (“But I got an art history degree…”) Borrowed to feed an academic passion, but nobody told you about job availability or income related to the work? We get it. Don’t worry, depending on your loan type, income and family size there’s an assortment of income-dependent repayment plans including:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
Advantages: Allows for very small qualifying payments to reduce your monthly expenses based on a percentage of your disposable income and family size. Some options may involve loan forgiveness after 20-25 years.
Disadvantages: Can have negative amortization which means your balance could grow over time if your payment is less than the finance charges. These repayment plans require verification of income and household size. Also, the forgiven balance may be taxed as income unless you qualify for public service loan forgiveness.
How do I decide on the best repayment plan for me? We recommend taking a look at the big picture and breaking out your crystal ball.
- First consider your current finances and determine what you can afford. If you don’t have a spending plan, create one showing your current income and expenses. Decide how much of the money you have left after necessary expenses can be used to repay student debt.
- Think about your future and consider what your career will look like, what kind of income you anticipate and how big (or small) your family will be.
- Use the Federal Student Aid Repayment Estimator to determine which plan fits your current and future needs.