Can you change your student loan repayment plan?

Can you change your student loan repayment plan?

Federal student loans default on a typical repayment term of 10 years. But depending on your financial situation, you may be able to change your payment plan to make your monthly payments more affordable or set yourself up for student loan forgiveness.

If you need a little flexibility with your student loans, here’s what you need to know.

Can you change your student loan repayment plan?

Yes, it is possible to change your student loan repayment plan, especially if you have federal student loans. Some of the reasons to consider adjusting your payment plan include:

  • Your income has decreased.

  • Your expenses have increased.

  • You are applying for Public Service Loan Forgiveness.

  • You want to consolidate several loans into one.

  • You’re on a higher payment plan and want to pay off your loan faster.

Federal student loan repayment plan options

Student loan repayment plans range from 10 to 30 years, with some tying your monthly payments to your income and household size. Here’s a breakdown of the options available to you.

Standard payment plan

The default repayment plan for federal student loans is 10 years. However, if you use the direct loan consolidation program to combine multiple loans into one, you can extend that for up to 30 years.

The standard payment plan applies to all federal loan lenders, and you can even roll it back if you’ve chosen a higher payment plan in the past.

Eligible loans include:

  • Direct subsidized and unsubsidized loans

  • Subsidized and unsubsidized federal Stafford loans

  • Direct PLUS loan

  • Direct consolidation loan

Graduated payment plan

If your current income is low, but you expect a regular increase, a terminal payment plan may be a good option. Payments start low and increase, usually every two years, to ensure you can pay off the loan within 10 years – although you can go up to 30 years with a consolidation loan.

Anyone can apply for a graduated payment plan. Eligible loans include:

  • Direct subsidized and unsubsidized loans

  • Subsidized and unsubsidized federal Stafford loans

  • Direct PLUS loan

  • Direct consolidation loan

Extended payment plan

If you have more than $30,000 in outstanding federal direct loan debt, you can use an extended payment plan to extend your term for up to 25 years – payments can be fixed or graduated. Eligible loans include:

  • Direct subsidized and unsubsidized loans

  • Subsidized and unsubsidized federal Stafford loans

  • Direct PLUS loan

  • Direct consolidation loan

Saving a Value Education plan (SAVE)

Formerly the Revised Pay As You Earn (REPAYE) payment plan, the SAVE plan is an income-driven payment plan.

In this plan, your monthly payment will be 5% of your discretionary income, which is the difference between your adjusted gross income (AGI) and 225% of the federal poverty guideline for your household size and state of residence. there.

If your AGI is below the threshold, your monthly payment will be $0. Additionally, if your resulting payments are not enough to cover the accrued interest on the loan, those payments will not be added to your balance.

Finally, if your original loan balance is $12,000 or less, you are eligible for forgiveness after 10 years of the SAVE plan. That timeline extends by one year for every additional $1,000 borrowed — for example, a $15,000 original balance would qualify for forgiveness after 13 years.

If you were in the REPAYE plan before the student loan moratorium began in March 2020, you will automatically be enrolled in the SAVE plan. Eligible loans include:

  • Direct subsidized and unsubsidized loans

  • Direct PLUS loans made to students

  • Direct consolidation loans without paying off any PLUS loans made by the parents

Note that if you have federal Stafford loans, you can consolidate them into the direct loan program and qualify.

Pay As You Earn Repayment Plan (PAYE)

Under the PAYE plan, your monthly payment will be 10% of your discretionary income, which is the difference between your AGI and 150% of the federal poverty guideline. However, your payment is guaranteed to be no higher than your payment on a regular payment plan.

If you still have a balance after 20 years, the remaining amount is forgiven. To qualify, you must have been a new student loan borrower on or after October 1, 2007, and you must have received a disbursement of a direct loan on or after October 1, 2011. Generally you must you have a high debt burden relative to your income. Eligible loans include:

  • Direct subsidized and unsubsidized loans

  • Direct PLUS loans made to students

  • Direct consolidation loans without paying off any PLUS loans made by the parents

Income-Based Repayment Plan (IBR)

Another income-driven repayment plan, the IBR plan is designed for borrowers with high debt-to-income ratios.

The plan will reduce your monthly payments to 10% of your discretionary income — the difference between your AGI and 150% of the poverty guideline — if you received your first loan on or after July 1, 2014, and 15% if you received your first loan before that.

Additionally, if you still have a balance after 20 years (or 25 if you received your first loan before July 1, 2014), the remaining amount will be forgiven. Eligible loans include:

  • Direct subsidized and unsubsidized loans

  • Subsidized and unsubsidized federal Stafford loans

  • Direct PLUS loans made to students

  • Direct consolidation loans without paying off any PLUS loans made by the parents

Income-Contingent Repayment Plan (ICR)

The only income-driven payment plan available to parents, the ICR plan reduces your monthly payment to less than 20 percent of discretionary income – the difference between your AGI and 100% of the poverty guideline – or the amount you pay in a payment plan with a fixed payment for 12 years, adjusted according to your income.

If you have a student loan balance after 25 years, the remaining amount will be forgiven. Eligible loans include:

  • Direct subsidized and unsubsidized loans

  • Direct PLUS loans made to students

  • Direct consolidation loans, including payday PLUS loans made by parents

Income Sensitive Payment Plan (ISR)

If you have loans in the federal family education loan program (FFEL), which ended in 2010, your monthly payment will be based on your income – although the formula will depend on your lender – to ensure that your loan is paid off within 15 year.

Eligible loans include:

What is the best student loan repayment plan?

Ultimately, the best student loan repayment plan depends on your financial situation and goals. Here are some potential scenarios to consider:

  • Your income is high: The standard payment plan may be the best option for you because it is the easiest way to become debt free.

  • You’re struggling to keep up with payments: An income-driven payment plan may be a better option. Since the new SAVE plan offers the opportunity for the lowest monthly payments and the fastest path to forgiveness for borrowers with a lower loan amount, it is better to start there to see what it looks like yours.

  • You are a parent: If you took out parent PLUS loans and are struggling to make payments, consider consolidating your loans, so you can qualify for the ICR plan.

  • You are applying for Public Service Loan Forgiveness: The Public Service Loan Forgiveness program offers complete forgiveness after you make 120 qualifying monthly payments while working for a government agency or eligible non-profit organization. When you apply, get an income-driven payment plan, so you don’t risk paying off your loan before you meet the requirements. Compare monthly payments between SAVE, PAYE and IBR plans to find the best fit for you.

How to change your student loan repayment plan

To get more information about your options and to switch to a new student loan payment plan, contact your loan servicer. To find your loan servicer and its contact information, log into your StudentAid.gov account or check your most recent statement.

Before you do, however, you can use an online federal student loan simulator to get an idea of ​​which plans are right for you and what your monthly payments will look like.

Can you change your private student loan repayment plan?

Generally, you can’t change your payment plan with a private student loan once you’re approved. However, you can refinance your loans with another private lender, which will allow you to choose a new payment term.

That said, you usually need good or excellent credit and a stable income to qualify for the favorable terms of a student refinance loan. Otherwise, you may not get an interest rate low enough to make the process worth it, even with a different payment plan.

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