Student loans are a fact of life for most students, often being the only way for students to afford a higher education. Technical programs such as engineering and other STEM (Science, Technology, Engineering and Math) fields can be especially costly. But taking out loans to finance your education is only the first step. It is also essential to know what your repayment options will be after you’ve graduated.
Just as there are many ways to pay for your education, with a sometimes-complex combination of scholarships, loans and savings, repaying your student loans is more complicated than ever before. Given that no two borrowers will share the exact same post-graduation incomes, life or career goals and family situations, it can be difficult to determine which repayment method is best suited to your future.
The best way to know your options when it comes to the eventual repayment of your student loans is to do what engineers do best: research.
“Borrowers have to do a lot of homework upfront to determine which program fits their needs, but there’s work at the backend, too, like income-driven programs that require them to reapply every year,” said Sarah Hamilton, student loan supervisor for Take Charge America, a national non-profit credit counseling and student loan counseling agency. Ideally before agreeing to a student loan in the first place, you will be aware of the repayment terms and any options you may have, such as deferred or income-based payments. There are some loan agreements in which the repayment terms can be renegotiated later, but you shouldn’t rely on having that option.
Some of the common repayment programs available to federal student loan borrowers include:
Standard Repayment
If you took out federal student loans, you’ll automatically be enrolled in the Standard plan, which requires fixed monthly payments over 10 years. If you can afford it, this method is your best option for paying down your loans and saving on interest.
Income-Based Repayment (IBR)
Monthly payments are determined by your income and family size, and are capped at 10 to 15 percent of a borrower’s discretionary income. This is a good option if you’re struggling with Standard payments, or if you carry a high debt amount relative to your income.
Pay as You Earn (PAYE) & Revised Pay as You Earn
These plans offer two of the lowest monthly payment amounts of all repayment options. Payments are set at 10 percent of discretionary income, and may increase or decrease each year based on income, family size, tax filing status and state of residence. Balances are forgiven after 20 or 25 years. Both options require annual recertification, which can impact the monthly payment as well.
Income-Contingent Repayment (ICR)
Monthly payments are calculated at 20 percent of your discretionary income or the payment amount on a 12-year fixed repayment plan – whichever is lower. It’s easier to qualify for this program since there’s no income eligibility requirement, but ICR payments may end up being higher than the Standard plan.
Direct Consolidation
These loans combine multiple federal loans and offer a fixed interest rate based on the weighted average of the interest rates of the loans you’re consolidating, which could save you money and simplify the repayment process. However, it will also extend the repayment terms.
Graduated Repayment
With this program, payments start lower and increase over time, and have a 10-year term. It’s a good option if you expect your salary to climb as you progress in your career. Though this plan isn’t usually the best option compared to income-driven programs, it might be the right fit for you if you don’t want the hassle of reapplying for an income-driven plan every year. You can also consolidate and extend the terms up to 30 years.
Extended Repayment
The term of this loan design is extended to 25 years, meaning monthly payments are lower. It can be an attractive option if you can’t afford the payments on the Standard plan – but you’ll pay more in interest over time.
Public Service Loan Forgiveness
You may be eligible for this program if you work a full-time public service job with the government, military, public schools or 501(c)3 non-profits. This program can forgive any balances on federal loans after 120 qualifying payments.
Employer Student Loan Assistance
Finding an employer that offers programs to assist students with repaying their loans as part of the employee benefits package is a great way to increase your repayment capabilities. Employer programs might offer to match a percentage of your debt payments similarly to how companies contribute to an employee’s 401(k), or simply offer a lump sum payment toward your loan balance. These agreements usually include conditions such as committing to work for the company for a specific length of time in exchange for the loan assistance.
Along with researching your loan and repayment options on your own, it can also be beneficial to speak with student loan counselors or other financial advisers, either through the lending institution or through your bank. They can offer insights into the best way to arrange your loans and repayments, and help you avoid being scammed by phony or illegal debt relief companies.
Finding the repayment plan best suited to your situation will ensure you can afford to pursue your education, and afford to enjoy your post-graduation future while repaying your loans.
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