It’s one thing to get a Student Loan and another to clear it. You need to work with a Student Loan repayment plan to come out of such debt. To work with the repayment plan, you need to know about the Student Loan repayment options and the Student Loan repayment threshold to find the best plan based on the interest rates. Also, taking into consideration Student Loan forgiveness if need be.
This article seeks to enlighten you on the Student Loan repayment plan and the options available to meet up with the payment. As you read on the student repayment calculator, you will also find the student repayment threshold and all you need to know to settle this debt on time. Let’s proceed !!!
Read More: How to Change Student Loan Repayment Plan
Table of Contents
Are Student Loans Repaid?
Well, yes. It’s a Loan, meaning 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 reason, 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 thresholds 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 repayment options have been made available for students. Finding the perfect plan is important; otherwise, you live your life repaying a loan unless you opt for student loan forgiveness. There are 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
Read More: Student Loan Forgiveness – How to get your Loan Forgiven
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 with a high income who 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. Like 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 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 to 25 years. Monthly payments may be fixed or graduated lower than those in the Standard 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 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 “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 will forgive any remaining loan balance if 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 seek Public Service Loan Forgiveness (PSLF), 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 your loans are for undergraduate studies. If any loans were for graduate studies, the repayment period jumps to 25 years.
The REPAYE plan benefits those with high balances and a modest income. Since there is no cap, 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. 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.
Read More: How to Secure Private Student Loans
Pay As You Earn Repayment Plan (PAYE)
The PAYE plan sets your monthly payment at 10% of your “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 programs.)
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 your 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!!!
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 eligibility requirements for the different plans. This includes
- Your income
- Family size
- Personal circumstances
- Current Job, etc.
For example, if you have a low income, 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.
Read More: How to Secure a Federal Student Loan – All You Need to Know
What’s a Student Loan Repayment Calculator?
To find the perfect repayment options or the suitable student loan repayment plan, 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 loan repayment to 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 expected earnings and see which payment plan makes the most sense.
How much do I Repay?
Analyzing the student loan repayment calculator lets you know which loan repayment option to choose. Also, it tells you how much you are to repay every month. 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 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 could request a refund at the end of the tax year if your income were below the annual repayment threshold.
Read More: Benefits of Student Loans – 10 things you need to know
How and when do I Repay my Loan?
You can repay the April after you finish or leave your course, but only if you earn over the student loan repayment threshold. For example, if you graduate in June, you’ll be due to repay in April if you earn 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.
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 simultaneously as you pay self-assessment tax.
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 canceled.
They base the interest rate on the Retail Price Index or RPI, which measures changes in the cost of living in the UK. The interest rate is updated yearly in September, using the RPI from March.
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 studying, until April after you leave your course, the interest charged will be RPI plus 3%.
When you’ve left your course – from the April after 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 does charge interest. Therefore, it’s wise you choose right from day one.
What if I Can’t Pay my Loan?
You may apply for student loan forgiveness if you can’t pay your loan. If you plan 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 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, nothing can be forgiven once you make your qualifying payments.
An income-driven repayment plan is typically best if you’re planning to pursue loan forgiveness.
Read More: The Different Types of Loans for Students