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Can you change your student loan repayment plan?

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Federal student loans default to a standard repayment term of 10 years. But depending on your financial situation, you may want to adjust your repayment plan to make your monthly payment more affordable or to position yourself for student loan forgiveness. If you need a little more flexibility with your student loans, here’s what you need to know.

Can you change your student loan repayment plan?

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

  • Your income has decreased.
  • Your expenses have increased.
  • You’re applying for Public Service Loan Forgiveness.
  • You want to consolidate multiple loans into one.
  • You’re already on a longer repayment plan and want to pay off your debt more quickly.
  • Federal student loan repayment plan options

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

Standard repayment 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 to up to 30 years. The standard repayment plan is available to all federal loan borrowers, and you can even switch back to it if you’ve chosen a longer repayment plan in the past.

Eligible loans include:

  • Direct subsidized and unsubsidized loans
  • Subsidized and unsubsidized federal Stafford loans
  • Direct PLUS loans
  • Direct consolidation loans
  • Graduated repayment plan

If your income is low now, but you expect regular increases, the graduated repayment plan can be a good option. Payments start out low and increase, usually every two years, to ensure that you pay off the loan within 10 years — though you can go as long as 30 years with a consolidation loan.

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

  • Direct subsidized and unsubsidized loans
  • Subsidized and unsubsidized federal Stafford loans
  • Direct PLUS loans
  • Direct consolidation loans
  • Extended repayment plan

If you have more than $30,000 in outstanding federal direct loan debt, you can use the extended repayment plan to stretch your term 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 loans
  • Direct consolidation loans
  • Saving on a Valuable Education plan (SAVE)

Formerly the Revised Pay As You Earn (REPAYE) repayment plan, the SAVE plan is an income-driven repayment plan. On this plan, your monthly payments 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.

If your AGI is below that threshold, your monthly payment will be $0. What’s more, if your resulting payment isn’t enough to cover accruing interest on the loan, those charges won’t be added to your balance. Finally, if your original loan balance was $12,000 or less, you qualify for forgiveness after 10 years on the SAVE plan. That timeline extends by one year for each additional $1,000 borrowed — for example, a $15,000 original balance qualifies for forgiveness after 13 years.

If you were on the REPAYE plan before the student loan repayment pause began in March 2020, you’ll be automatically enrolled in the SAVE plan. Eligible loans include:

  • Direct subsidized and unsubsidized loans
  • Direct PLUS loans made to students
  • Direct consolidation loans that did not repay any PLUS loans made to 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 payments 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 never be higher than your payment on the standard repayment plan.

If you still have a balance after 20 years, the remaining amount will be forgiven. To qualify, you must be a new student loan borrower on or after Oct. 1, 2007, and you must have received a disbursement of a direct loan on or after Oct. 1, 2011. You also typically need to 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 that did not repay any PLUS loans made to parents
  • Income-Based Repayment Plan (IBR)

Another income-driven repayment plan, the IBR plan is designed for borrowers who have a high debt amount relative to their income.

The plan reduces your monthly payment to 10% of your discretionary income — the difference between your AGI and 150% of the poverty guideline — if you received your first loans 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 that did not repay any PLUS loans made to parents
  • Income-Contingent Repayment Plan (ICR)

The only income-driven repayment plan available to parents, the ICR plan reduces your monthly payment to the lesser of 20 per cent of discretionary income — the difference between your AGI and 100% of the poverty guideline — or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.

If you still 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 those that repaid PLUS loans made to parents
  • Income-Sensitive Repayment Plan (ISR)

If you have loans in the federal family education loan program (FFEL), which ended in 2010, your monthly payments will be based on your income — though the formula will depend on your lender — to ensure that your loan will be repaid within 15 years.

Eligible loans include:

  • Subsidized and unsubsidized federal Stafford loans
  • FFEL PLUS loans
  • FFEL consolidation loans

What is the best student loan repayment plan?

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

You have a high income: The standard repayment plan may be the best option for you because it’s the quickest path to becoming debt-free.

You’re struggling to keep up with payments: An income-driven repayment plan may be the better choice. Because the new SAVE plan offers a chance at the lowest monthly payment and the quickest path to forgiveness for borrowers with lower debt amounts, it’s best to start there to see what yours will look like.

You’re a parent: If you took out parent PLUS loans and you’re having trouble making payments, consider consolidating your loans, so you can qualify for the ICR plan.

You’re 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 not-for-profit organization. If you’re applying, get on an income-driven repayment plan, so you don’t risk paying off your debt before you meet the requirements. Compare monthly payments between the SAVE, PAYE and IBR plans to determine the best fit for you.

How to change your student loan repayment plan

To get more information about your options and switch to a new student loan repayment plan, contact your loan servicer. To find your loan servicer and its contact information, log in to your account at StudentAid.gov or check your latest statement.

Before you do so, however, you can use the online federal student loan simulator to get an idea of which plans you’re eligible for and what your monthly payment will look like.

Can you change your private student loan repayment plan?

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

That said, you’ll typically need good or excellent credit and a high income to qualify for favourable terms on a student refinance loan. Otherwise, you may not get an interest rate that’s low enough to make the process worth it, even with a different repayment plan.

By: Ben Luthi

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