Most college graduate experience a significant change of life-stage after they graduate. There are so many new subjects and needs to manage – how to get ahead in your new career, rent payments, transportation costs, and the list goes on. It is natural to forget about many of the issues you faced as a student. When it comes to student loans, it’s easy to lose track of the repayment program options you have.
You may not have time to contemplate this subject, but you should be wondering, “can I change my student loan repayment plan?” Or “how do I change my student loan repayment plans?” Well, most of what you need, to explore the answer to these questions, is right here.
How do I change my student loan repayment plan for federal loans?
First, there is a lot of flexibility when it comes to modifying your federal student loan payments. There are different options to go about it, from changing the number of years (the loan term) you have to repay to changing your monthly payment. You can even pause payments or consolidate your loans.
Selecting the right repayment plan for you depends on your specific situation and the goal you have in mind. Do you want to pay your loans off faster? Need to have lower monthly payments? Or, is it convenience – do you prefer to have all of your loans consolidated into one?
The answers to these questions will lead to different types of repayment plans. You need to understand your biggest pain point first and then go from there. Consider which of the following four scenarios applies directly to your situation:
1. I need to lower my monthly payments
There are a few options you can explore if you’re struggling to pay your bills:
• Income-driven repayment plans
Deferment and forbearance give you a break on payments. Income-driven repayment plans don’t pause your payments, but do lower them. Income-driven programs include:
• Income-Based Repayment Plans (IBR)
IBR plans apply to PLUS Loans, Federal Stafford Loans, Direct Loans, FFEL, or Direct Consolidation loans that don’t include Direct or FFEL PLUS loans to parents.
• Payments are 10 or 15 percent of your discretionary income. You are eligible for forgiveness after consecutive payments for 20 or 25 years.
• Revised Pay As You Earn Payment Plan (REPAYE)
Direct Loans and Direct Consolidation Loans qualify for REPAYE plans.
• Payments are 10 percent of your discretionary income. You’re eligible for forgiveness after consecutive payments for 20 or 25 years.
• Pay As You Earn Payment Plan (PAYE)
PAYE plans are for Direct Loans and Direct Consolidation Loans borrowed on or after October 1, 2007, and received on or after October 1, 2011.
• Payments are 10 percent of your discretionary income. You are eligible for forgiveness after consecutive payments for 20 years.
• Income-Contingent Repayment Plan (ICR)
ICR plans are available for Direct Loans and Direct Consolidation Loans.
• Payments will be calculated by whichever of the following is less: 20 percent of your discretionary income or the amount you’d pay on a fixed 12-year repayment plan, adjusted to your income. You are eligible for forgiveness after consecutive payments for 25 years.
• Income-Sensitive Repayment Plan
This type of repayment plan is available for Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.
• Your annual income is the basis for how much your payments are – the formula used will vary by lender. Ten years is the maximum repayment term.
Remember, you have to reapply for these repayment plans annually and amounts that are forgiven may be subject to taxes. And, excluding Income-Sensitive Repayment Plans, the above plans (Income-driven plans) may result in a longer repayment term unless you qualify for loan forgiveness.
2. My loans are varied and confusing
It is not unusual to have multiple loan types which can be confusing. This is a pretty a typical result. After all, the U.S. Department of Education approaches loan distribution by school year. There is a remedy to this confusion. You have an option to consolidate them into a Direct Consolidation Loan. Doing so can make all your loans eligible for some of the income-driven repayment plans mentioned above.
The idea behind this loan consolidation is to combine federal loans with various servicers and interest rates into one. Servicers are the for-profit companies that the Dept. of Education turns your loans over to for monthly processing. Applying for Direct Loan Consolidation is a free process. However, keep in mind that once you consolidate your federal loans through Direct Loan Consolidation, it restarts the clock on any progress you’ve made toward loan forgiveness.
Here are a few other pros and cons of Direct Loan Consolidation, according to Federal Student Aid:
Advantages of Direct Loan Consolidation
• Simplify your repayment
• Lower your monthly payment by lengthening your repayment term
• New access to income-driven repayment plans
• Exclude the unpredictability of variable rate loans – if you have them
Disadvantages of Direct Loan Consolidation
• The term of your loan could be extended and may result in a higher cost repayment plan.
• Might lose access to benefits like interest rate discounts
• Lose credit for any payments you’ve made so far towards forgiveness
3. I’m hoping to have my loans forgiven
If your main objective is to have your loans forgiven, this is something you might be able to do even while using an income-driven repayment plan.
Provided below is a list of federal loan forgiveness options:
• Closed School Discharge
• Public Service Loan Forgiveness
• Teacher Loan Forgiveness
• Perkins Loan Cancellation and Discharge
• Total and Permanent Disability and Discharge
• Discharge Due to Death
• Discharge in Bankruptcy
• False Certification of Student Eligibility or Unauthorized Payment Discharge
• Unpaid Refund Discharge
• Borrower Defense Discharge
Many of these forgiveness plans are circumstantial. However, there are several that you can actively work to understand how they work and whether or not you qualify.
• Public Service Loan Forgiveness
Applies to Direct Loans or Direct Consolidation Loans.
• Full-time employees of governmental organizations, 501(c)(3) not-for-profits and other qualifying not-for-profits are eligible for forgiveness after making 120 qualifying payments on a 10-year Standard Repayment Plan or an income-driven repayment plan.
• Teacher Loan Forgiveness
Not available for PLUS Loans or Federal Perkins Loans. However, the latter can go through Teacher Cancellation.
• Full-time teachers working at qualifying schools for five years are eligible for up to $17,500 of loan forgiveness.
• Forgiveness from Income-Driven Repayment Plans
Anyone on an Income-Driven Repayment Plan can qualify for loan forgiveness, but only after the required number of years of consecutive payments. The requirement is typically 20 or 25 years.
The last substantive change to these programs actually involved the issue of a new Income-driven program. They have not changed frequently in recent years, but are subject to change as laws around student loans change.
4. I can afford my payments, and I want out of debt faster
If you’re wondering, “how do I change my student loan repayment plan if I want to get out of debt faster?”, there are three non-income-driven based programs to review closely and consider:
• Standard Repayment Plan: This consists of fixed payments with a repayment term of up to 10 years or in the case of Consolidation loans the term can extend up to 30 years.
• Graduated Repayment Plan: Under this program, payments start small and gradually increase on a pre-set schedule. This provides you visibility and predictability. The repayment term is up to 10 years or, for Consolidation loans, the term can extend up to 30 years.
• Extended Repayment Plan: This includes both fixed or graduated payments; the term can go up to 25 years.
Now that you have a clear understanding of the different options available you may wish to switch to another repayment program. The best approach is to contact an independent service provider for professional advice and administrative support. These independent organizations – like Higher Level Processing (HLP) – do not offer loans and therefore have no vested interest other than helping you save money and making the process easy.
Student loans can be difficult to manage at times, but that doesn’t mean you have to be completely stuck. If you need to change your repayment terms, tackle it head-on. The more quickly you can change your monthly payments for the better, the sooner you’ll be able to get a handle back on your loans.