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If you’re struggling to make your student loan payments each month, you may be wondering if there are any options to relieve the burden. The good news is, if you have federal student loans, you will likely be able to lower the amount you pay each month. However, these lower repayment options may have a catch, as they may result in paying off a higher amount overall.
Student loan debt is at an all-time high in the United States, and is showing no signs of slowing down. It isn’t surprising that between growing student loans and stagnant wages, many college graduates find themselves having a hard time making their monthly student loan payments. Thankfully, there are options for borrowers with federal student loans — and it is relatively simple to reduce your monthly payments using one of several different payment plans.
Income-driven repayment plans base the amount you pay on your income, capping your monthly payment from 10 to 20 percent of your discretionary income. After 20 to 25 years of on-time payments, the remainder of your loans will be forgiven under these plans, which include income-based, income-contingent, Pay As You Earn and Revised Pay as You Earn. Eligibility for these plans depends on the year that you first took out your student loans.
The government also offers a graduated repayment plan, which is a 10-year plan where you can pay a lower monthly amount to start, with your payments increasing every two years. There are also extended repayment plans, where student loan payments can be drawn out to 25 years, with payments either fixed or graduated. These plans are only available to borrowers with more than $30,000 in direct loans.
To switch your student loans, first, go to the Federal Student Aid Repayment Estimator to determine what your payments may be on different plans. Then contact your student loan servicer, which is the company that manages your federal student loans. They will discuss the next steps to take, which may involve filling out an application and providing information to verify your income if you are on an income-based repayment plan. If you qualify for an income-driven plan, you will be required to fill out an application and provide proof of your income each year.
While it may be relatively easy to change your student loan repayment plan if you have federal student loans, that doesn’t mean it’s a wise choice. You may have lower payments in the short-term, but end up paying more for your loan overall. Before deciding to switch your student loan repayment plan, carefully consider whether you can afford to pay off your student loans without switching plans. If switching plans is the only way you will be able to keep on top of your student loan payments, be sure that you note your new payment amount and due date, and be sure to make your payments on time each month.
Author: Jeff Gitlen