It’s one thing to get a Student Loan, and it’s another thing to clear it. To come out of such debt, you need to work with a Student Loan repayment plan. To work with the repayment plan, you need to know about the Student Loan repayment options, Student Loan repayment threshold to find the best plan for you based on the interest rates. Also taking into consideration Student Loan forgiveness if need be.
This article seeks to enlighten you on not just the Student Loan repayment plan but also the options available to meet up with the payment. You will also find, as you read on the student repayment calculator, the student repayment threshold and all you need to know to get this debt settled on time. Let’s proceed !!!
Are Student Loans Repaid?
Well, yes. It’s a Loan and I mean it means loans are to be paid back. While getting student loans is relatively easy, paying them off is a more involved multi-year process. There is still an option for student loan forgiveness.
Depending on the Loan you got, the repayment plan might defer. Although some loans can be forgiven depending on some reasons, you’re expected to pay back every dime you borrowed. Paying back requires you to choose a repayment plan.
You should know that you only get to pay back once you get a job. There are Student Loan repayment threshold you might reach, and they can defer the remaining balance. So yes, you get to pay back with interest (Little or much depending on the Loan)
Are there types of Student Loan Repayment Plans?
So many repayments options have been made available for students. Finding the perfect plan for you is of utmost importance else you live your life repaying a loan unless if you opt for student loan forgiveness. There are basically eight types of Student Loan repayment options. They include;
- Standard Repayment Plan
- Graduated Repayment Plan
- Extended Repayment Plan
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Income-Sensitive Repayment Plan
Standard Repayment Plan
The Standard Repayment Plan (for non-consolidated loans) features fixed payments made for only 10 years. The repayment amount is higher than other plans but comes with little interest. The Standard Repayment Plan is good for someone looking to pay off their loans as quickly as possible, or someone who has a high income and doesn’t want to face even larger monthly payments on an income-based repayment plan. Those seeking Public Service Loan Forgiveness should NOT use this plan.
Graduated Repayment Plan
The Graduated Repayment Plan features lower initial payments that increase every two years. Similar to the Standard Repayment Plan, the repayment period is typically only 10 years. The Graduated Repayment Plan is good for someone looking to pay off their loans as quickly as possible, while having a low starting income that is expected to grow throughout the 10 year repayment period. We do not recommend this plan for those seeking Public Service Loan Forgiveness because your loan will already be off in 10 years.
Extended Repayment Plan
The Extended Repayment Plan allows you to extend the repayment period for up to 25 years. Monthly payments may be fixed or graduated and are lower than those found in the Standard Repayment Plan and Graduated Repayment Plan. This is good for someone looking for a low monthly payment. However, you’ll end up paying a lot more interest over the life of the loan. Someone with a high income but with large financial obligations might also seek this payment plan.
Income-Driven Repayment Plans
There are four different Income-Driven Repayment Plans. According to the U.S. Department of Education, these plans set your monthly payment at an amount that is “intended to be affordable based on your income and family size.”
The payment for these plans is typically a set percentage of your income. Some people may qualify for no monthly payments depending on their income and family size. The repayment period for these plans varies between 20 and 25 years. After the repayment period, the government if will forgive any remaining loan balance your federal student loans aren’t fully repaid yet.
These plans are good for low and lower-income individuals with very high loan balances, because they help keep your payments low. Loan forgiveness at the end of the repayment period is especially helpful for those in the lowest income brackets with high amounts of debt.
Take note: If you are seeking Public Service Loan Forgiveness (PSLF), then you must pick one of these plans.
Revised Pay As You Earn Repayment Plan (REPAYE)
The REPAYE plan sets your monthly payment at 10% of your “discretionary” monthly income. Under this plan, your repayment period is 20 years if all of your loans were for undergraduate studies. If any loans were for graduate studies, the repayment period jumps to 25 years
The REPAYE plan is good for those with high balances and a modest income. It is also a solid plan for an individual who doesn’t mind if their monthly payment is larger than what it would be under the Standard Repayment Plan since there is no cap. For those with very large loan balances, the government subsidizes some of the interest that accrues if your monthly payment is not large enough to cover the interest payment.
Pay As You Earn Repayment Plan (PAYE)
The PAYE plan sets your monthly payment at 10% of your monthly “discretionary” income, but never more than the monthly payment you would make under the Standard Repayment Plan. Under this plan, your repayment period is 20 years. (we define Discretionary income as it is in the REPAYE program.)
The PAYE plan is good for those with high loan balances. The PAYE plan is unique from the REPAYE plan because with the PAYE plan your monthly payment will be capped at the Standard Repayment Plan level even if your income balloons.
Income-Based Repayment Plan (IBR)
The IBR plan sets your monthly payment at 10% or 15% of your monthly “discretionary income”, but never more than the monthly payment you would make under the Standard Repayment Plan. Under this plan, your repayment period is 20 years if you are a new borrower, otherwise it’s 25 years. (we define Discretionary income as it is in the REPAYE and PAYE program.)
The IBR plan is good for new borrowers who have high balances and want a lower monthly payment. For those who don’t qualify as new borrowers, your payment of 15% of income will mean you’ll pay more than under the PAYE plan. However, higher monthly payments do result in lower interest paid.
Income-Contingent Repayment Plan (ICR)
The ICR plan sets your monthly payment as the lesser of 20% of your “discretionary” income or what you’d pay under a repayment plan with a fixed payment over 12 years. Under this plan, your repayment period is 25 years. (This plan uses a different definition of discretionary income: For ICR it’s the difference between you actual income and 100% of the poverty guideline for your state and family size.)
The ICR plan is good for someone looking for a slightly lower payment and slightly longer repayment period than under the Standard Repayment Plan. This plan is only available for those with FFEL loans. It does not qualify for PSLF.
Income-Sensitive Repayment Plan
According to the U.S. Department of Education, the Income-Sensitive Repayment Plan is “available to low-income borrowers who have Federal Family Education Loan (FFEL) Program loans.” Under this plan, your repayment period is 10 years. The monthly payment is determined based on your annual income.
To those wondering and seeking counsel. You might wonder which repayment plan is right for me? You don’t still get them to determine that using a Student Loan repayment calculator.
Wondering what that is? Keep reading!!!
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Which Repayment Plan Is Right For Me?
Determining which Student Loan Repayment option to select depends on several factors. For one, you need to check which plans you qualify for. Moat countries have the eligibility requirements for the different plans. This include
- Your income
- Family size
- Personal circumstances
- Current Job, etc.
For example, if you have a low income, then an income-driven plan may give you a lower monthly payment that is easier to handle. If you plan on pursuing public service loan forgiveness (PSLF), then the Standard Repayment Plan is not a good option.
What’s a student loan repayment calculator?
To find the perfect repayment options or the suitable student loan repayment plan for you, you need to analyze that using the student loan repayment calculator.
The student loan repayment calculator is a great way to assess your situation and determine which plan will give you a manageable student loan repayment so that you can create a solid plan to pay off your student loans.
You’ll want to input your loan amounts and see the estimated monthly payments. You’ll also want to consider your future expected earnings and see which payment plan makes the most sense for you.
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How much do I repay?
Analyzing with the student loan repayment calculator gives you a clue of which student loan repayment option to choose. Also, it tells you how much you are to repay on a monthly basis. The important thing to remember is that the amount you’ll repay is based on how much you earn, not how much you borrowed.
You’ll repay 9% of your income above the student loan repayment threshold – earn less and you won’t repay. Once you leave your course, you’ll only repay when your income is above the student loan repayment threshold. The current UK threshold is £26,575 a year, £2,214 a month, or £511 a week.
For example, if you earn £2,250 a month before tax, you’ll repay £3 a month. This is because £2,250 is £36 above the monthly threshold of £2,214, and 9% of £36 is £3.
If your income changes, the amount you repay will change too. If you stop working, or earn below the repayment threshold, your repayments will stop until you earn over the threshold.
You’ll make a repayment if you go over the monthly threshold at any point during the year, for example, if you get a bonus or work overtime. You can request a refund at the end of the tax year if your total income was below the annual repayment threshold.
How and when do I repay my loan?
You’ll be because of repay the April after you finish or leave your course, but only if you’re earning over the student loan repayment threshold. For example, if you graduate in June 2020, you’ll be due to repay in April 2021, if you’re earning enough.
You’ll be due to repay the April four years after the start of your course, or the April after you finish or leave your course, whichever comes first, but only if you’re earning over the student loan repayment threshold.
They will cancel any outstanding loan balance 30 years after you’re due to repay – even if you have repaid none of it.
How you’ll repay depends on what you do after your course:
If you start work, your employer will automatically take 9% of your income above the threshold from your salary, along with tax and National Insurance.
If you’re self-employed, you’ll make repayments at the same time as you pay tax on self-assessment.
If you move overseas, you’ll repay directly to the Student Loans Company, instead of having it taken automatically from your pay. The repayment threshold could differ from the UK, which means the amount you repay could be different. Find out more about repaying from overseas.
Is there an Interest Rate on the Loan Repayment Plan?
You need to know that Interest is charged from the day the Student Loans Company makes your first payment to you or your uni or college until your loan is repaid in full or cancelled.
They base the interest rate on the Retail Price Index or RPI, which measures changes to the cost of living in the UK. The interest rate is updated once a year in September, using the RPI from March of that year.
It’s important to remember that the interest rate you’re charged doesn’t affect the amount you’ll repay each month.
How much interest rate is charged?
The interest rate depends on your circumstances: When you’re at uni or college – while you’re studying, up until the April after you leave your course, the interest charged will be RPI plus 3%.
When you’ve left your course – from the April after you’ve left your course, interest will be based on your income, up to a maximum of RPI plus 3%.
If you don’t keep your details up-to-date–you’ll be charged RPI plus 3%, whatever your income, until the Student Loans Company has all the information they need.
Also, depending on the type of Loan there might be no interest. Federal Student Loan offers little or no interest, but private student loan do charge interest. Therefore, it’s wise you choose aright from day one.
What if I can’t pay my loan?
Well, if you can’t pay your loan, chances are that you apply for student loan forgiveness. If you’re planning to apply for the Public Service Loan Forgiveness program (PSLF) or a similar program, it may make sense to go with the repayment plan that requires you to pay less money overall.
With PSLF, for instance, you need to make 120 qualifying payments besides meeting other requirements. If you have a 10-year standard repayment plan, there won’t be anything left over to forgive once you make your qualifying payments.
An income-driven repayment plan is typically best if you’re planning to pursue loan forgiveness.
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