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Student Loan Blog Series III: Repayment Options

Bankruptcy AttorneysThere are a number of student loan payment options.  You don’t need to know what payment options are available for each type of loans you have.  What you need to know are the available payment options.  This way you can ask the lender or servicer if they offer that option. Moreover, you should consider these payment plans before you fall into serious hardship. Below Orange County bankruptcy attorneys will discuss the number of options available.

Repayment Options for Your Student Loans

Standard or Traditional Repayment Plan

The traditional schedule is typically a 10 year plan and the least in actual interest paid. However, there are different types of

Extended Repayment Plan

The extended repayment is an option, where you will pay more interest.  However, you can make smaller payments over a longer period of time.

Graduated Repayment Plan

The graduated repayment plan is one where you pay less at the beginning of the loan.  The payments will gradually increase as more time passes.  You will pay less interest then the extended repayment plan, however, your payments will be higher by the end of the loan.

Income Contingent Repayment Plan

If you have a federal loan (except for PLUS loans), you can ask for this type of payment plan. As it is titled, the payment is contingent on your income.  However, keep in mind that your interest at the regular rate will still continue to accrue. Therefore, if your payment is less than the amount of interest you accrue each month, then your loan balance will continue to grow. On the other hand if your loan is not paid off after 25 years, the government will cancel the remaining debt. It is important to note that you will be taxed by the IRS on this canceled debt as income.

Income Based Repayment Plan

You can get an IBRP for both Direct loans and FFELs, but you cannot be in default to qualify. IBRP offers more flexible options than under ICRPs or ISRPs. Your debt is eliminated after 25 years of payments, payments can be less than the accruing interest and may be less than under ICRPs or ISRPs.

Hardship Repayment Plan for Perkins Loans

If you have a Perkins loan, you must pay at least $40 per month, but the school can extend repayment for another ten years or allow additional extensions for prolonged illness or unemployment.

Pay as You Earn Repayment Plan

The pay as you earn (PAYE) repayment plan is similar to other financial hardship repayment plans.  However, under PAYE, your monthly payment might be even lower than those programs. Under PAYE, the payment amount is calculated based off of your monthly income. The calculation is not important for our purposes.  For our purposes, it is important that you know of this program and consult with your lender to determine if it is available to you.

Here are some of the key components to the PAYE program.

Partial Financial Hardship

PAYE is available to student loan borrowers who have a partial financial hardship. The definition of a Partial Financial Hardship is simple.  You have a hardship if your monthly payment under PAYE would be lower than the monthly payment under a standard 10 year payment plan. Other benefits of PAYE is that the government will subsidize the interest for the first three years.  Additionally, there is loan forgiveness after 20 years.

The Cons of the PAYE Program

Although this program has a number of benefits, all borrowers should consider the effects. For starters, the loan will take longer to pay off, and you will be paying a high amount of interest.  Additionally, the program is not automatically renewable and therefore you  have to send in financial documents every year. Finally, you may have to pay taxes if your debt is forgiven. Just remember that this option as with all the other options above may be available for your student loans.

In addition to managing your student loan debt, you should also consider reading our blog series on credit debt.  Together, you can manage all of your debts into something more manageable.

Student Loan Blog Series: Introduction

Student Loan Blog Series I: The Crisis

Student Loan Blog Series II: Types of Loans

Student Loan Blog Series III: Repayment Options

Student Loan Blog Series IV: Deferment

Student Loan Blog Series V: Forbearance

Student Loan Blog Series VI: Cancellation

Student Loan Blog Series VII: Default Options

Student Loan Blog Series VIII: Bankruptcy