Some people consider loans as a headache, but it shouldn’t be! As long as you know the information behind it and you consider the crucial factors that won’t affect your expenses, you will surely find the best offer suitable for your lifestyle and needs. So, don’t apply for a loan yet unless you are fully aware of these critical takeaways!
Loan repayment schedule refers to the specific period provided to repay a loan. The fee to be paid includes the interest rate of the outstanding loan amount and the principal payment, which is the sum of money lent to the borrower.
What is the Best Student Loan Repayment Plan?
If you are a student and needs a loan to finance your study, take note that the period and amount of payment vary according to the plan that you select. So, to know which one is suitable for you, here are the different student loan repayment plans to choose from. From these options, make sure that you select one that perfectly works for you.
- Standard repayment – in this plan, you have ten years to pay your loan. Within this period, the amount of the payment is fixed every month. The monthly fee depends on how much it takes to pay your whole balance during the payment term. It requires you to pay a minimum of $50 per month, which is the default payment plan that only applies to federal student loans.
- Extended repayment – this plan has a lower monthly payment, and the term can be extended up to 25 years. You may also be allowed to choose between the standard payment in which you’ll have a fixed monthly rate or graduated payment in which the amount increases every two years.
- Graduated repayment – just like the standards repayment, this plan also allows you to pay within ten years. However, its monthly payment is lower during the first few months and increases every two years.
- Income-driven repayment – this plan is broken down into four different categories:
- Income-based repayment – a flexible solution for students if their target payment is lower than the standard repayment. They should also show that their debt is higher than their annual discretionary income. This plan will only take 10 to 15 percent of the borrower’s discretionary income.
- Pay As You Earn (PAYE) – this plan requires you to be a recent borrower and your target payment should be lower than the standard payment. The repayment period is 20 years, and it should take out 10% of your annual discretionary income.
- Revised Pay As You Earn (REPAYE) – this plan has a few similarities to PAYE. However, it is different in some points. You don’t have to demonstrate any financial assistance, and you can be eligible no matter you haven’t borrowed in the past. The repayment period is 20 years if your purpose is to finance your undergraduate study. On the other hand, you will be given a 25-year payment term if your loan is intended for a graduate study. Both terms will take out 10% of your annual discretionary income.
- Income-Contingent Repayment (ICR) – this plan has no income eligibility requirement. It is an excellent option if you don’t qualify for any of the mentioned plans. However, take note that this option will take out 20% of your annual discretionary income, which is higher than the other plans. This loan is payable for 25 years.
Now that you know the different repayment plans make sure that you qualify to your selected option. Consider the factors that might affect you when you started to pay your loan. It is also worth remembering that a longer period of repayment will likely to have a higher interest over time. Also, take note that decision-making is not a one-night process if you want to be satisfied with its results. So, make sure you think about it carefully before jumping in.