Legitimate loan lenders tend to allow potential borrowers to use many repayment options. Some of these options are extremely flexible and apt for different types of student loans. Before you decide on a repayment scheme, you must be aware of the loan you have. Reimbursement plans for loans that are issued by the Federal Government will be different from School Issued loans and private loans. Also, remember the following points when you repay:
- You can switch between reimbursement plans at anytime! You are not locked to a specific method at all times.
- You should not wait to switch till you are well behind the monthly payments. This is when most options will seep away from your hand.
If you have a federal student loan, you can repay it in several ways. Here is a comprehensive insight on how to reimburse federal loans the right way.
Plan #1 – Standard Repayment
Standard Repayment Plan for student loans is offered by the loan’s upright lender. You should make monthly payments for 10 years. The Standard Plan expects borrowers to pay a bigger sum than all other repayment strategies. Conversely, the standard repayment plan has a higher rate of interest due to its very short time period.
Plan #2 – Graduated Repayment
Next in line would be the graduated repayment plan. This is a special scheme for students with promising jobs! The graduated repayment plan starts with a very low monthly payment. As time passes, the plan’s monthly payments would increase slowly. Generally, the value would increase after two short years. This is an ideal scheme for borrowers with steady sources of income. If used properly the graduated repayment plan will help you repay your loan quickly.
Plan #3 – Extended Repayment
Most students with low credit scores tend to opt for extended repayment plans. As suggested by its name, you can stretch the loan’s reimbursement plan to 25 long years! The duration will depend on your total loan balance. To qualify for the extended repayment plan, you should have a total outstanding balance of 30000 USD. You can combine the extended repayment plan with the graduated payment scheme.
Plan #4 – Hardship Repayment
Even if you are financially unstable, there are plenty of repayment plans you can choose from. These plans will save you from the financial burden temporarily. The plan you qualify for will depend on the loan you own:
- Borrowers with Federal Direct Loan can make use of the income contingent repayment scheme. This plan will reduce your monthly payment to 5 USD or lesser. However, if your monthly payments are lower than the rate of interest, your principal will increase steeply.
- Income sensitive reimbursement plan is based on the borrower’s income, loan amount and family size. You can cover the interest based on your monthly income. Nevertheless, you should repay the loan within 10 years.
- Hardship reimbursement Plan is a customized version of the Perkins Loan. In this scheme, you must pay 40 USD every month. Moreover, the reimbursement period can be extended by 10 years.