If you’re paying off federal student loans, you are one of nearly 37 million borrowers with outstanding student debt. The U.S. government offers you several student loan repayment plans, including some that give you a maximum of 25 years to pay off your student debt, while others are tailored to your income and family size. You can even switch your plan if your needs or living conditions change.
While the United States continues to see growth in college attendance numbers, the costs of education have become exorbitant and ridiculous. Yes, federal student loans and private bank education loans have made a tremendous impact on the ability of many to attend college and pursue their dreams, but the debt accumulated by students leaving college combined with entering into a sputtering economy and uncertain job market is a recipe for disaster. There is over 1 trillion dollars in student debt and growing and the question that comes to mind is, how do we help students that are having a tough time getting that first career job with a decent salary to start paying down their student loans?
It is fair to say that the federal government is aware of this growing problem. Through the William T Ford Act, the Department of Education has developed programs to assist graduates and former students in getting control of their student debt. These programs are geared to simply federal student loans by consolidating them into one loan and one lower monthly payment. The hope is this simplification helps keep people from defaulting on their student loans. There are 4 programs available with the goal of meeting the needs of those struggling to pay their student loan debts based on varying family and income circumstances. There is no one size fits all.
Graduated Plan
In this plan, your payments are not fixed. They are low at first and gradually increase. It’s a good plan if you expect your income to grow steadily over time. No payment will ever be more than three times your lowest payment.
Extended Plan
This plan follows a fixed or graduated monthly payment, but you have up to 25 years to pay it off. You pay more interest than other plans, but payments are lower than a Standard Plan.
Standard Plan
You’ll pay a fixed monthly amount until your loans are paid in full or for up to 10 years. Your monthly payments will be at least $50. If you do not select a repayment option, you will be defaulted into this plan.
Income-Based Plan
Your monthly payment is based on 15 percent of your discretionary income, family size and state of residency during any period where there’s a financial hardship.
Income-Contingent Plan
Your monthly payments are calculated on your adjusted gross income, family size, and total loan amount. You have up to 25 years to pay it off under this plan.
Pay As You Earn Plan
Also known as President Obama’s Student Loan Plan. Monthly payments are calculated on a similar basis to the Income-Based Plan, but payments are capped at 10 percent of discretionary income. It’s adjusted annually and you have up to 20 years to pay the debt.
Each program offered by the DOE is geared to consolidate all federal student loans into a single loan and one easy payment. The programs are also tailored to fit the needs of those struggling to pay their federal student loans and offer them payment relief. New low monthly payments are calculated taking into consideration income and family size. The lower the income is the lower the payment will be. These programs are effective because they assess each situation and offer a monthly payment arrangement that corresponds to where the debtor is currently. You can’t beat that and with an additional consideration of the needs of your family and family size, federal student loan debt consolidations are a solid option.
