Student Loan Payment Plan Questions

Who Determines My Student Loan Repayment Plan?

If you have federal student loans, you have a payment plan. But how do you know if you have the right one? Did you even know that there were different ones to pick from? What you hope to do with those loans, the types of loans, and more impact which plans you can pick from, and which plan you want to pick. That last point is crucial; many people look at student loans just like every other loan: the bank tells you how much you’ll pay. In the case of student loans, you get to drive your own repayment. You don’t get to say, “I’ll pay $12, thank you very much,” but you do get to pick your plan, so let’s get to know them a little better.

What Are the Different Payment Plans?

There are several different payment plans that student loan borrowers can choose from. Many of them, especially the Income-Driven Repayment (IDR) plans, have acronyms, which can make it confusing to keep them all straight. They fall into two broad, easily understood categories. The first is Fixed Payment; these plans are based on your total balance and how long you want to keep paying. They include the Standard, Graduated, and Extended plans. 

The Standard plan is…well, standard. It’s the plan that everyone is automatically assigned when they graduate. It assumes that you’re going to pay the same amount every month for 10 years, after which point the loan is repaid—hooray! Unfortunately, if you have a large loan balance, your monthly payment is going to be proportionally big, which can be difficult to manage for a new graduate. 

Enter the Graduated plan! Here, the monthly payment starts out lower, then gradually increases over time (usually every 2 years) until the balance is paid off in 10 years. This sounds great, in theory, but payments can get out of hand as they ramp up over time. 

The third Fixed Payment plan is the Extended plan. It stretches repayment out to 25 years, which can significantly reduce the monthly burden on borrowers. Even though that lower number can seem enticing (especially since it doesn’t increase, unlike the Graduated plan), it means that borrowers end up paying significantly more in interest over time. 

A more practical option for many borrowers (especially those with larger loan balances) is the Income-Driven Repayment (IDR) family of plans, which we’ll talk about next week!

If you have questions about repayment, including what type of plan you should have, give us a call. We use your real figures to compare the pros and cons of different options, giving the most complete picture as you make decisions about your student loans.