If you are one of the 44 million graduates that is drowning in student loan debt, wondering how much you owe in student loans is something that is always on your mind. Student loans can be hard to understand and keep track of, especially when it seems like you will never be done paying them off. The best thing you can do for yourself is to understand your student loans and your payment schedule so that you can stay on top of them.
Types of Student Loans
There are two types of student loans available—federal and privatized.
Federal loans make up the majority of student loans with eight million students having received a direct federal loan in 2016. The federal direct student loan program offers direct subsidized and unsubsidized loans called Stafford loans as well as Direct PLUS and Direct Consolidation loans. These four programs were responsible for 80% of the federal student loans given out.
Stafford loans are the only federal student loans that are currently available to students. However, you may have a Perkins Loan, which was open to students until 2017 when Congress stopped offering the program. The Perkins Federal Student Loan was an option to students that showed exceptional financial need.
Stafford Loans were more common than Perkins Loans, and the funding for the program comes from the Federal Direct Student Loan Program. Students may be eligible for subsidized and/or unsubsidized Stafford Loans. The type you receive, as well as your education level, will determine your rate and loan amount.
Subsidized loans mean that you do not have to start repaying your loan until you graduate. The government will also pay your interest rate, usually around 3.75%, while you are still attending school. Subsidized Stafford Loans are only available to students that show financial hardship.
In most cases, a family’s income must be less than $50,000 per year for a student to be eligible. The dollar amount that students can receive in their student loans package depends on their year in school. Freshman are capped at $3,500, Sophomores at $4,500 and third and fourth years students can receive up to $5,500. The maximum amount of subsidized loans that can be taken out by a student over the course of their education is $23,000.
Unsubsidized loans mean that students must pay all of the interest accumulated with their loans. The government does not subsidize the interest. Interest rates are similar to subsidized loans and loan payments can be deferred until after graduation. All students are eligible for these types of loans, regardless of financial need.
A student can receive from $5,000-$12,500, depending on their dependency status and year in school. Students who are independent can receive more substantial loan amounts. For instance, graduate students are eligible for up to $20,500.
The total amount of loans cannot exceed $138,000, although medical students receive an exception and can receive up to $40,500 annually and $224,000 in total.
PLUS Loans are also called Parent Loans for Undergraduate Students. They are for parents who are funding their children’s education. Graduate students can also receive PLUS Loans, but they are called Grad PLUS. These loans are also supported by the federal government.
However, there are no limits on the amount borrowed, and the money can be used for noneducation expenses. These loans have higher interest rates, usually around 6.31% (in 2017), but the rate is fixed.
Direct Consolidation Loans
During a student’s education, they may receive several different loans, each from a different lender. This means that after graduation, you could have up to ten separate payments or more to make each month. A Direct Consolidation Loan makes the process a lot easier by combining your debts to one servicer.
These loans have fixed interest rates and repayment options based on income or ability to pay. Consolidating your loans can result in lower total payments each month, but students are only eligible for a Consolidation Loan once. The downside to this program is that your payments are usually stretched out longer which means more payments to interest. You can lose eligibility for loan forgiveness by enrolling your loan into a Consolidation Loan.
Private Education Loans
Students who attend private colleges that are for-profit, and have a financial need beyond what federal student loans cover, can also apply for Private Education Loans. This type of loan is also called an alternative education loan and are only offered to students who meet specific credit and eligibility requirements. Interest rates can be fixed or variable and are usually must higher than federally guaranteed loans such as the Stafford Loans.
They are a better option than putting your college education on high-interest credit cards, however. Many of these loans often require repayment beginning immediately so students may have to start their payments while they are still in school.
Health Professions Student Loans
Health professionals can receive student loans specifically designed for people in the health industry. Health Professions Student Loans are available for students going to school for health, sport, or veterinary medicine. These loans have requirements depending on financial need and your specific area of study. The Health Resources and Services Administration (HRSA) manages these loans for medical student students.
Some students that cannot meet the financial burden of their education with federal student loans, or who may not income qualify for need-based loans, can also apply for private loans through banks or credit institutions. When you apply for a private loan, you will have to go through a credit check and qualification process with your lender to determine eligibility and the amount you can borrow. Private loans almost always have a higher interest rate than Federal Student Loans.
Interest rates on private loans can also be variable meaning that your payment amounts can fluctuate. Federal Student Loans are offered on a fixed rate so that your payment remains the same each month. Private loans are also never subsidized, meaning students pay the entirety of the interest.
Another drawback of private loans is that they are not eligible for student loan forgiveness. Repayment plans may not be as flexible as they are with Federal Student Loans. Students also must typically make their first loan repayment within thirty to sixty days of borrowing, regardless of their status in school.
How to Repay Your Student Loans
If you have private loans, you will need to talk to your specific lender to understand your payment plans and terms. Federal Students Loans have several repayment options and even options customized to your income, which private loans do not usually offer.
Whether you have private or Federal Student Loan, you should have online access to your loan accounts and be able to manage your payments, see your balance, and find information on how to contact your loan servicer. The federal student loan site, studentaid.ed.gov, has student loan repayment calculators that can help you figure out how much your payments will be before you have to start paying them.
You should keep in mind that these calculators are just estimates and not a guarantee at what your monthly payment will be. You can also log into studentaid.gov to see the total amount of Federal Student Loans you have borrowed and find out who your loan servicers are. A student may have more than one loan servicer, especially if they attended more than one school or schools in different states.
Before you begin repaying your loans, you need to make a note of when and to who your payments need to be made. If you have Federal Student Loans and private loans, you could owe multiple payments to more than one agency each month. If you have multiple Federal Student Loans with different services, you could also have to make more than one payment each month.
Having a Direct Consolidation Loan helps with this burden. These loans combine your repayment schedules down to one monthly payment, which is much easier to manage but can cost you more in interest in the long run. If you are handling multiple payments, make sure that you have easily accessible the amount you owe, who you owe it to and what the due date is. Late or missed payments come with hefty late fees and added interest to your loan.
You are also responsible for staying in touch with your Federal Student Loan services to ensure that you make your payments on time and on the right schedule. Just because you aren’t sent a bill does not let you off the hook for payments. Most Federal Student Loans do not require you to start repaying until after you graduate with a Bachelor’s degree or drop below half-time enrollment. After this time, you have a grace period before your payments start (usually about six months).
During your grace period, you need to make sure you understand how much your upcoming payments will be and how to budget for those payments. You will also need to select your repayment plan and make sure it suits your financial needs.
Repayment Plan Options for Federal Student Loans
One of the significant benefits to Federal Student Loans is that you have multiple repayment options available. It is important to note that students are responsible for going into their student loans accounts and selecting the repayment option that they want. Otherwise, students are put on the standard repayment plan which lasts for ten years. Repayments plans can be either traditional or income driven.
Traditional Repayment Plans
Traditional repayment plans are eligible for all borrowers with extended repayment plans available for borrowers with more than $30,000 in student loan debt.
Standard Repayment Plan
The standard repayment plan gives students up to ten years to repay their loan with a fixed payment of at least $50 per month. This loan repayment plan offers less interest than with other plans. If you have Subsidized Direct Loans, Direct Unsubsidized Loans, Subsidized or Unsubsidized Stafford Loans, Direct PLUS or FFEL PLUS Loans, you are eligible for the standard repayment plan.
Graduated Repayment Plan
All borrowers with Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized or Unsubsidized Stafford Loans, Direct PLUS or FFEL PLUS Loans are eligible for Graduated Repayment Plans. With this loan, the term length is ten years, but payments start out small and increase over time. The minimum payment is the interest due, but these repayment plans result in more money repaid over time due to interest than the standard repayment plan. This is a good option for students who have just started their new career after college, however, and their financial future is not immediately certain.
Extended Repayment Plan
Borrowers of Direct Subsidized Loans, Unsubsidized Direct Loans, Subsidized or Unsubsidized Stafford Loans, Direct PLUS or FFEL PLUS Loans with more than $30,000 in student loan debt are eligible for the extended repayment plan that gives students up to twenty-five years to repay their loan. Fixed or graduated options are available, however, the structure must ensure that your loan is paid off in no more than twenty-five years.
Monthly payments will be lower than the standard or graduated repayment plan. However, you will pay more over the time of your loan due to the extended period of time that interest has to accumulate. These loans are a good option for students with incredible loan debt.
Income-Driven Repayment Plans
Income-driven repayment plans to make your monthly payment amount affordable based on your income and factors such as dependents. These repayment plans are only available to Direct Loan Program borrowers. If you are interested in Public Service Loan Forgiveness, an Income-Driven Repayment Plan may be the best option for you.
All of these repayment plans require more money repaid in the long run compared to the traditional plans due to the extended time to repay the debt.
Income-Contingent Repayment Plan (ICRP)
The ICRP is for direct loan borrowers and recipients of Direct Consolidation Loans that included repayment of a PLUS loan to a parent after 2006. With these loans, after 25 years the balance on your student loans will be forgiven if you have been paying consistently. But income tax will be owed on the balance that is forgiven.
Payments will be either 20% of your discretionary income or the amount you have to pay on a 12-year repayment plan with a fixed payment according to your income. Whichever is less, is your payment amount. Each year, payments on ICRPs are recalculated, and eligibility must be assessed and determined.
Payments can go up or down during this recalculation period with changes in income or family size playing a significant determining factor. If you are married and you file a joint return, your spouse’s income will count towards your ability to repay. You can also choose to repay your federal student loans jointly with your spouse if you both have them.
Income-Based Repayment Plan (IBR)
The IBR is for direct loan borrowers and recipients of Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized or Unsubsidized Stafford Loans, Direct PLUS or FFEL PLUS Loans whose required payment under the IBR would be less than what their repayment amount under the Traditional Standard Repayment Plan over ten years. After 20-25 years of payments, outstanding balances can be forgiven.
Your monthly repayment amount under this plan will be 10% of your discretionary income with payments recalculated for eligibility every year. If you are married and file a joint return, your spouse’s income will be counted towards your repayment and income eligibility. Your debt to income ration must be very high to be approved for this program.
Pay as You Earn Repayment Plan (PAYE)
Borrowers who have Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to students (not parents), and Direct Consolidation Loans that do not include repayment of PLUS loans made to parents are eligible for the Pay As You Earn Repayment Plan — if they are a new borrower after October 2007 and have received a Federal Direct Disbursement on or after Oct 1, 2011.
Borrowers must also have a smaller payment under this plan than they would with the standard ten-year plan. Outstanding loan balances are forgiven after 20 years with income tax owed on the forgiven balance. The maximum monthly payments will be 10% of your discretionary income but could be less.
Payments are recalculated annually, and you must have high debt to income ration. Like the other income-based repayment options, if you are married and file a joint return your spouse’s income, it will affect your eligibility and payment amount.
Revised Pay as You Earn Repayment Plan (REPAYE)
The revised PAYE plan is eligible to all direct loan program borrowers with Direct Subsidized Loans, Unsubsidized Direct Loans, PLUS Loans given to students, and Direct Consolidation Loans that do not include PLUS loan made to parents. After 20-25 years any outstanding balance is forgiven, and income tax is due on the forgiven amount. Monthly payments will be 10% of your monthly discretionary income and be recalculated annually and based on new income or dependents, including new marriages. If you are married, your spouse’s income will be considered whether you file jointly or separately.
Borrowers can change their repayment plan options through their loan service provider. Your loan service provider should also provide you with the information to know when your first payment is due, the number of payments you have to make and how often, and the amounts of each payment. Your loan servicer will also have options for you to pay on the interest accrued on your student loans while you are still in school or during your grace period.
Putting small amounts of money toward your student loan interest before you have to begin paying them back is always a great idea. When interest is not paid, the lender will capitalize it.
Underpaid interest, accumulated during in-school or grace period status, is added to the principal part of the loan. This increases the outstanding balance and monthly payment amount.
Other Considerations with Repaying Student Loans
- You may pay off your student loans early or prepay your loans while in-school without penalty. This is often a benefit to students because the shorter the time it takes to pay off the loan, the less you will pay in interest.
- Any amount you pay over the minimum monthly payment will be applied to the interest accrued before it is applied towards the principal.
- Interest payments are tax deductible for eligible students on the federal tax return. If you have made payments to the interest of your student loans, you will receive a 1098-E. This form is a student loan interest statement and will also be reported to the IRS by your loan servicer.
- There are special repayment options for members of the Armed Forces
- These repayment options are managed by the Department of Defense and Department of Education.
- Student Loans distributed during and before active duty service are eligible.
- Military Service Deferments are available that postpone repayments during certain periods of active duty and immediately following an active duty assignment.
- Deferments are available for Servicemembers who are released from Active Duty and returning to school.
- Some Military Servicemembers are eligible for Public Service Loan Forgiveness.
- 0% interest payments due for up to 60 months while serving in a hostile area that qualifies for special pay.
- Income-driven repayment plan options.
- HEROES Act Waiver that waives certain documentation requirements for income-driven repayment plans.
- Department of Defense Repayment of Loans can happen in certain circumstances and always as determined by the DOD.
- Veterans Total and Permanent Disability Discharge allow for some servicemembers who have a service-related disability to have their student loans discharged.
- Studentaid.ed.gov has many resources for military members and veterans to better understand their student’s loans.
Getting Your Student Loans Forgiven
Many people are worried about the repaying their student loans and choose specific programs that will make them eligible for student loan forgiveness. The Public Student Loan Forgiveness (PSLF) Program is a federal program that can eliminate some of your Federal Direct student debt if you meet two requirements:
- Have made 120 qualifying payments on student loan debt under repayment plans that qualify
- Work full-time for an eligible employer
While working for an eligible employer may seem like a hard task to accomplish. It is important to remember that the title of your job is not as important as who the employer is. PSLF Program can be eligible to students who work for one of these agencies:
- 501(c)(3) not for profit that is tax exempt
- Some other types of not-for-profits
- AmeriCorps or Peace Corps Volunteer
When it comes to full-time status, employees must meet their employer’s definition of full time and be classified as such or work at least 30 hours per week. You can also have multiple part-time jobs at qualifying employers as long as the total hours worked per week is at least 30 hours. Each job meets the employer qualifications for the program.
In order for the 120 payments made to count, each payment must be made within 15 days of the due date, for the full amount, under a qualifying repayment plan while employed by the qualifying employer. If you do not meet each of these qualifications, the payment will not count.
Income-Driven Repayment plans all count as qualifying towards PSLF Program. The Standard Repayment Plan also qualifies. However, because there are 120 payments required for forgiveness, your loan would be repaid when you are eligible for forgiveness. If you plan to take a qualifying job and utilize the PSLF Program, it is advisable to set up an income-driven repayment plan when you begin repaying your loans.
It is also important to remember that while students can make payments to their student loans while they are in school still, these loans WILL NOT count towards the 120 payments needed to meet eligibility requirements for loan forgiveness. The 120 payments also do not have to be consecutive, so if you start working for a non-eligible employer, you will not lose credit for the payments made when you were with an eligible employer.
You should not apply for Public Student Loan Forgiveness until you have made 120 payments that are eligible. This will take a few years. Applying for this program is not something you need to certify for when you exit college. However, if you know you plan to go into a public service job, you will want to choose or think about switching to an income-driven repayment plan to ensure you will qualify with the payments and have a balance left over to forgive.
Teacher Loan Forgiveness Program
Teacher Loan Forgiveness Program is also available to teachers who teach full time for five consecutive and complete academic calendar years in elementary and secondary school districts that meet eligibility requirements of servicing low income or having a high ratio of low-income students. This program will forgive up to $17,500 in Direct Federal Student Loans that were taken out after October 1, 1998, for teachers who began work after October 1, 1998.
The amount of student loan forgiveness that teachers can receive is based on the subjects they teach and specialty. Teachers in Mathematics, Science, and Special Education can receive the full amount of $17,500 forgiven. Teachers in other fields may only be eligible for up to $5,000 if they were highly qualified. The Studentaid.ed.gov website has additional information on what a highly-qualified teacher means.
PLUS Loans and Federal Perkins Loans (which are no longer available) are not eligible for the Teacher Loan Forgiveness Program.
What to Do If You Cannot Afford Your Student Loan Payments
If you cannot afford your student loan payments, it is important not to default on them by simply choosing not to pay. Do not ignore your loan obligations. Instead, work with your loan servicer to find options that will keep your loan in good standing. Some of the options include moving your due dates, choosing a different repayment plan to lower your monthly amount, or consolidating your loans.
If none of these options will work, you can try to qualify for deferment or forbearance. This allows you to temporarily stop making payments or reduce the amount you have to pay below what the repayment plan requirements are. Depending on your student loan type, you may still accrue interest during this time period, but you will not have to make payments.
You may be eligible for student loan deferment or forbearance if:
- You’re a parent who received a PLUS loan while the student is still enrolled at least half-time at an eligible school and then for an additional six months after enrollment drops below half-time.
- If you are enrolled in a graduate fellowship program
- If you are enrolled in a rehabilitation training program for the disabled that is approved
- If you are unemployed or unable to find gainful employment for up to three years post-graduation or dropping below half-time
- You are experiencing economic hardship or serving in the Peace Corps
- While on active duty military service during wartime, national emergency, or military operation
Each of these special circumstances requires that you fill out a form specific to that circumstance. More information about student loan deferment or forbearance can be found at studentaid.ed.gov. If you are struggling to make your student loan payments, deferment or forbearance may be a good option for you.
If your financial circumstances are going to be uncertain for the long term, consider an income-driven repayment plan instead. With these plans, your monthly payment can be as low as $0 per month while still keeping your loan in good standing. These payment plans can also grant you forgiveness after 20-25 years if there is a balance left.
Whenever you have questions or concerns regarding your student loan repayments, your loan servicer should be your first line of communication. Your loan servicer wants you to remain in good standing with your loan. They will work with you to better understand your options for repayment and make sure that you are fulfilling your financial obligations.