The first thing you need to know is that if you don’t do anything at all with your student loans after you’re out of school, they’ll go directly into the default plan which is the standard 10-year repayment plan. For some people who have other priorities for their money or earn too little, the standard plan might have monthly payments that are too high to manage. For others, it could be seen as not aggressive enough for paying off debt within a quick enough timeline. The best way to know which team you’re on is to plug your numbers into a student loan repayment calculator and compare the plan that feels right for you to the default plan that you’d be stuck with for 10 years.
If you decide that you want to do something different, there are lots of options. Know that you can change between these options at any time if you’re struggling to make your payments.
Below, I’ll break them down based on the big main goal or priority you might be focusing on.
Goal 1: I want to pay the least over the course of my whole life. I don’t want to pay anybody any more than I have to for my education.
If this is you, then you want to be as aggressive as possible and either stick with the standard 10-year plan or be even more aggressive each month by sending more than your bill says is due each month. You’ll make the same monthly payment amount for all 10 years and pay off the loan faster than the average borrower. In order to do this, most people would have to make sacrifices like living at home with their parents or having roommates, or maybe even working a high paying job that they hate for a few years just to bring in the money needed to make large payments!
Goal 2: I want to pay the least amount possible each month. I’m more concerned with my monthly budget and I don’t really want to focus on how much I pay in total over the course of my life.
If you’re in this situation, for any reason, you first need to understand that you’ll be paying more at the end of the day when you choose this path. Income-driven plans extend your loan term from the standard 10 all the way up to 20 or even 25 years. If you understand that – and still choose to prioritize having a lower monthly payment, then you’ll want to choose one of the four different Income-Driven repayment plans available: Revised Pay As You Earn Repayment Plan (REPAYE Plan), Pay As You Earn Repayment Plan (PAYE Plan), Income-Based Repayment Plan (IBR Plan), Income-Contingent Repayment Plan (ICR Plan). Depending on how much your paycheck is, your payment due could be anywhere between $0 and several hundreds of dollars. The monthly amount will change each year when your income is reevaluated.
Why would anyone want to be making payments for 25 years when they could be done in 10 years? Well, at the end of that 20 to 25 year time with an Income-Driven repayment plan – if you’ve made all your payments on time, any remaining balance you owe will be forgiven. You will only be responsible for paying on the amount they wipe, but not the total amount. This is especially enticing for people who choose to work in a field that will not pay them very much even after decades of work.
Goal 3: I want to work at a public service organization or in a high-need area for at least 10 years and then get student loan forgiveness.
Depending on your loan and the type of work you do, you may be eligible for student loan forgiveness. With federal student loans, for example, you may be able to have some of your loans forgiven, which means you are no longer responsible for making any payments at all. That’s the dream, right?!! But – not so fast. They do not make this easy. A few recent news stories have come out, showing that only a small number of people who qualified actually have gotten their loans forgiven. You’d have to make sure that you complete every document each year, meet every single qualification, and do not miss a single deadline through the entire process in order to have a chance!
Goal 4: I want to merge all my loans into one so that I only pay one company every month and not a long list of them!
You can only take advantage of student loan consolidation if you have federal student loans. This will merge them all into one and you’ll only have one monthly payment to be responsible for. If you have private student loans in the mix, then you could refinance your student loans. This would allow you to combine all your debt into one account and also lower your interest rate if your credit is in good standing when you apply.
You can apply for income-driven repayment with your student loan servicer or at studentloans.gov and if you need some ideas for how to have a more successful approach to paying these loans off, check out this post, too!