Student Loan Repayment Game Plan

After having federal student loans in deferment due to the Covid-19 Pandemic and having several extensions, they are about to start back up once and for all. With higher living costs than in 2020, do you have a game plan of how you’re going to pay them back?

Evaluate Your Budget

Unfortunately, the time has come. It is inevitable that you will need to restart paying back your student loans. It has been nearly three years since the start of the payment pause, and let’s face it, a lot happened in those three years. Inflation has reached new heights, leaving our dollars to not stretch as far as they use to.

While we understand it will be difficult, it’s time to look for ways to fit student loans back into your budget. The best way to re-evaluate your budget is to look for ways to save. First, you should look at “fun” variable expenses such as entertainment budgets, travel, household goods, clothing, and more. Shaving a few dollars here and there could add up quickly. From there, you should look for ways to save in your dining/eating out budget, groceries, etc. If you need help with your budget, learn the basics here.

Repayment Programs

So evaluating your budget may not be realistic; your budget has seen three years of inflation and curveballs. Instead, it may be more reasonable to look at your current repayment plan and adjust it. There are standard and income-driven options available that could help with your minimum payments.

Standard Repayment Plan

All borrowers are available for this plan, and usually, you’ll pay less over time compared to other plans. This repayment plan puts you on track to have your student loans paid off within ten* years. Every month you’ll have a fixed payment amount with a minimum monthly payment of $50. The fixed monthly payment amount is calculated based on your total loan amount. The more you owe, the bigger the monthly payment. Yet, with this plan you’ll pay less in interest, saving you money!

Graduated Repayment Plan

Not everyone finds their career right after college. This repayment plan understands that. Payments are lower at the start and slowly rise to the fully amortized payment. This payment plan is structured so that you stay on track to have your student loans paid off in 10 years*.

Extended Repayment Plan

Got more than $30,000 in student loan debt? If you are trying to pay it off in 25 years, this may be the best option for you. The Extended Repayment Plan is for direct loan borrowers who have more than $30,000 in outstanding debt. The payments can be fixed or graduated; either way, the payments will add up to paying off your loans in 25 years. Depending on what you owe, this plan may be a more manageable option because your monthly payments will be lower than the 10-year plans listed above.

Income-Driven Repayment Plans

These plans are based off of your income and family size, and can significantly reduce your monthly payments. Explore the different income-driven repayment plan types.

Saving on Valuable Education Plan (SAVE) – Formerly known as the REPAYE Plan, this repayment type is available for direct loan borrowers and has set requirements. To be eligible for this repayment plan, you must update your income and family size every year (even if the information did not change). The monthly payments will be calculated based on only 10% of your discretionary income. If your loan isn not paid off in full 20 years (this applies to only undergraduate study), then your outstanding balance will be paid in full. So, if it feels like your student loan debt hole keeps getting deeper and deeper, consider switching to this plan.

Pay As You Earn Repayment Plan (PAYE)

Similar to the SAVE option, your monthly payments will only be 10% of your discretionary income with the stipulation that the amount will never be more than what you would have paid under the Standard Repayment Plan. This repayment option is only available to new borrowers on or after October 1, 2007, and must have received a disbursement of a Direct Loan on or after October 1, 2011. This plan requires an annual update of your family status and income.

Income-Based Repayment Plan (IBR)

To be eligible for the income-based repayment plan you must have high debt compared to your income. Essentially, you don’t make enough to make standard monthly payments. Your monthly payments are only 10-15% of your discretionary income and the amount will never exceed what your monthly payment would have been under the Standard Repayment Plan. This plan also requires your annual income and family status to be updated yearly and has the plus to have your student loans forgiven after 20 or 25 years, depending on when you received your first loans.

Interest will begin accumulating on September 1, 2023, and you will be expected to begin making payments on your student loans sometime in October. Evaluate your options and start making a plan now. To review more about your options, visit the Federal Student Aid website.

*If you consolidate your student loans, you be looking at a 30 year term instead.