How to Pay that First Student Loan Bill | College Coach
If you graduated this past spring and used student loans as part of your college financing strategy, you likely just received (or will soon receive) your very first student loan bill. For many graduates, this first bill can come as an unwelcome surprise. Sure, you knew you had to pay these loans back someday, but now that that day is here, and you see the size of your expected monthly payment, you may be feeling unprepared to handle repayment. Rest assured: if that monthly payment seems unaffordable based on your current financial circumstances, you do have some options. The government offers a number of repayment plans for your federal education loans, some of which may provide you with some relief:
- Standard Repayment: The default plan, which divides the balance owed (plus interest) equally over 120 payments, so that the loan is paid off within 10 years. If you did not request otherwise, this is likely the plan that your first bill was based upon.
- Extended Repayment: If your total student loan balance exceeds $30,000, allows you to extend repayment over up to 25 years, greatly reducing monthly payments.
- Graduated Repayment: Payments start out small, then gradually increase over the course of repayment. This plan is based on the theory that earnings tend to be lower at the start of careers, and gradually increase over time.
- Pay As You Earn Repayment: Caps monthly payments at 10% of the household’s discretionary income, and forgives remaining loan balances after 20 years. This plan is currently only available to “new borrowers,” as defined by the federal government, though availability will be expanded in the coming year.
- Income-Based Repayment: Caps monthly payments at 15% of the household’s discretionary income, and forgives remaining loan balances after 25 years.
- Income-Contingent Repayment: Caps monthly payments at 20% of the household’s discretionary income, and forgives remaining loan balances after 25 years.
- Income-Sensitive Repayment: Payments are based upon income, but each lender’s formula varies. This plan is only applicable to loans borrowed through the government’s FFEL lending program, which expired in 2010. Recent graduates are unlikely to have loans old enough to qualify.