Federal Student Loans

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Repaying Federal Student Loans: What are Your Repayment Plan Options?

Federal student loans are the most popular form of financing for students simply because they have the benefits of low interest rates, and borrowers do not have to go through credit checks or provide collateral. You could also postpone your payments under certain circumstances and the repayment terms are generally longer than other borrowing options. Being the largest source of college education loans, it is advisable to explore all your federal loan options before looking into private student loans. However, since you will ultimately have to repay the loan, it is important to understand the different payment plans for such loans.

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Standard repayment

This payment plan is ideal if you can comfortably afford your monthly payments. Typically, the minimum amount you can pay is 50 dollars and you have 10 years to repay the loan, but this may be longer (10 to 30 years) if your loans are consolidated. You don’t have to apply for a standard repayment plan since repayments start automatically.

Graduated repayment

This payment plan lets you to begin with lower payments that gradually increase with time. This repayment plan is ideal for those who prefer to begin with lower payments, assuming that their income will grow, allowing them to afford higher payments in the future. It is worth noting that the repayment period is still 10 years unless you have consolidated your loans. In addition, the interest rate on this repayment plan is greater than that for a standard repayment plan.

Income-based repayment

The monthly payments under this plan are dictated by your adjusted gross earnings and the size of your family. If you have a spouse with whom you file a joint income tax return, the adjusted gross income and student loan debt of your spouse might also be considered. The monthly payments in such as case might be less than the monthly accrued interest and are recalculated on an annual basis; you are therefore required to provide documentation every year for readjustment. The repayment period lasts up to 25 years, at which point you may be offered loan forgiveness if you have made 300 qualifying monthly payments or their equivalent. You can calculate your income base repayment here:

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Extended repayment

If you owe more than 30,000 dollars for a federal student loan, you can extend the repayment period for up to 25 years. This option is usually chosen by those in heavy debt, making it difficult to get a more suitable repayment plan. However, this repayment plan is only available to those who first received their loans in October 1998. Note that a longer repayment period will translate to higher interest costs. The repayment amount may be fixed or graduated.

It is important to understand that federal student loans must be repaid, even if your financial situation is not perfect. Your loan will not be cancelled even if you do not receive the education you expected or get the job you wanted. Failing to make your monthly loan payments leads to loan delinquency or even default. In case you are having trouble making your payments, it is advisable to contact your loan servicer immediately to find out what you can do to prevent your loan from going into default.

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