Commercial banks issue students loans with a surcharge of up to interest from the state budget and the introduction of loans, when using capital, which is at the disposal of banks, allows for a more effective increase in material assistance for students. The student loan repayment plans can be applied to all students, regardless of the type of institution (state, not state) and the kind of study (stationary, distance learning). Following the obligations of the loan agreement, the borrower must pay interest monthly and pay the amount of money in parts. The account for repayment is opened by the bank when granting a loan. There are a clear timetable and a defined payment scheme. So, why is having an educational, financial plan important? Let’s consider the topic of student loan repayment plans and see what options students have nowadays.
Standard Repayment Plan
This plan is a student loan repayment program for all federal student loans with a default maturity of ten years. If you cannot choose any other method, the calculation will occur automatically by using this plan.
In a standard repayment plan, monthly payments calculated according to what amount is required to repay the debt. Besides, it is worth it because the minimum amount of money per month is $50. Exceptions are Direct Consolidation Loans or FFEL Consolidation Loans, with which your term of payment of a debt may vary from 10 to 30 years. In this case, the minimum monthly payment remains in the amount of $50.
Graduated Repayment Plan
This program called gradual repayment is for borrowers who currently have low incomes but expect increasing of them shortly. That is, the program is for those who are waiting for salary increment over time and qualification obtainment. During the first years, the student pays only interest; therefore, in the beginning, the sum of this plan is less than the fee of the Standard Repayment Plan. Over time, to be specific in every two years, the payment will increase.
Extended Repayment Plan
This type of repayment is to provide more time to pay off federal student rentals. While the standard kind offers ten years, the extended type provides 25 years. Following this period, monthly payments will significantly decrease.
There are two payment plans here:
Fixed, with unchanged monthly bills throughout the payment period
Graduated, with monthly payments that will start with a small amount and grow every two years
The difference of this type of debt is the limitation of monthly payments to 10–20% of discretionary income. Income-driven payment includes such types of payments.
Income-Based Student Loan Repayment
Under the IBR, the student loan payment will be calculated at a student’s discretion and not following the loan balance.
The advantage of this type of payment is forgiveness of interest. If the borrowers’ monthly fee is not enough to repay the accrued interest on their direct loan, they will not have to pay interest. The validity period of this function extends for three years in a row. Also, if you took out a loan after July 1, 2014, then after 20 years your debt will be forgiven. The loan taken before that date will not exist after 25 years. For government employees, there is also an advantage that with the timely payment of 120 payments and work permanently in the public service you will have no debt anymore.
The primary function that distinguishes this type of student loan is that it doesn’t have an income eligibility requirement. It means that following your income, the level of your payments may be higher than with the standard plan. Thus, you pay less than 20% of your discrete income, and your payment plan will stay fixed for 12 years. When paying 20%, the repayment period may be 25 years, and after that, you will have no balance of the outstanding loan.
Revised Pay As You Earn
This type of repayment plan is an extension of the previously published PAYE. It is vital to have Federal Direct, Stafford or Graduate Plus loans to use this repayment plan. The essence of the creation of REPAYE was to reduce the previously existing restrictions and add more benefits to the PAYE. It is worth noting that when it is received, there is no need for a minimum amount of income. Thus, the main difference between this type of repayment is a 10% limited payment from discretionary income, which is currently the lowest indicator.
Also, students are considered forgiveness of loan repayment after 20 in case all the fees before that period were on time. For graduates, this time limit increases to 25 years. In the first three years of the loan, full interest forgiveness of interest is considered with the help of a state subsidy, and after three years tax can be cut by 50%.
So, the idea of this plan is to reduce the level of your payout during your entry into the work sphere and increase it as you earn more.
Pay As You Earn (PAYE)
As was noted before, Pay As You Earn (PAYE) is an extension of Revised Pay As You Earn (REPAYE). There are also conditions of 10% and conditions for the forgiveness of all loans after 20 years in the IBR to 20 years in PAYE. Thus, the payment of your credit depends on the amount you earned and not on what you owe.
If your PAYE monthly payment is equal to the amount that you pay every month under the standard repayment plan or exceeds this amount, you will not be able to participate in the program and receive benefits.
Difference between PAYE and REPAYE Student Loan Repayment Plans
The main difference between these two Student Loan Repayment Plans is that you can apply for a REPAYE regardless of the date of issue of your loan. In case you could not get a loan from PAYE, you can count on REPAYE with almost the same conditions. The difference in the loan repayment period is that with REPAYE you can get forgiveness after 20 or 25 years.
This type is for those whose monthly bills for student loans are very high. Income-sensitive Student Loan Repayment Plan allows you to limit monthly payments from 4 to 25%. The term of use is five years. Upon the expiration of the time, you will have to increase your fees to repay the standard 10-year term.
This plan is suitable for those who want to receive short-term assistance for payments in 10 years if you are confident in your growing income for the next time.
Choosing the right Student Loan Repayment Plans is a crucial task that requires high concentration and consideration of all the details. As nowadays we have many Student Loan Repayment Plans it is essential to decide by thoroughly studying the topic and considering the situation you have. Each of the plans discussed above has its advantages that fit an individual financial situation, so don’t forget to take into consideration all the details and use a student loan repayment plan calculator.