How to Manage Student Loans after Graduation

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Everyone knows that they should properly manage student loans and be paying down student loan debt as fast as possible. If it were only that easy.

Some of the most common questions I get from Millennials about student loans are, “Do I qualify for a discounted payment plan or loan forgiveness?” And, “Am I on the right payment plan?” This post will provide you with ways to help with managing student loan debt.

The trouble with standard payment plans

If you took out any Federal Direct Loans, FFEL Loans, Perkins Loans, or almost any other loan out there, you were probably automatically enrolled in a standard payment plan as soon as your grace period ended. These loans are paid back over 10 years and will typically be the option that offers you to get out of debt the fastest but have the highest payment.

Lowering student loan debt payments

Income-driven plans, or repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size, were designed for those facing financial hardship upon graduation (which pretty much describes nearly all graduates these days).  Instead of simply calculating the payment period over three years, the government will calculate your payment based on a percentage of your income. With an income-driven plan, it could take a while longer to pay down your debt (if you only pay the minimum monthly payment), but it can significantly lower your monthly payment if you have a high balance. Plus, on some payment plans, when the interest owed exceeds the monthly payment, the government with cover the shortfall for three years or more.

Why everyone should consider income-driven plans


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You might be thinking, “I can afford to pay the standard payment. Why should I consider an income-driven plan?” Good question! Everybody knows that you should pay down the loan with the highest interest rate first. What you may not know is that using an income-driven repayment plan can still have benefits even if you can afford the standard payment plan, since an income-driven plan lowers your monthly payment across all of your loans.

“Won’t I pay the same amount of interest either way?” you might be asking yourself. Not necessarily. Because your required payment is lowered, you now have more cash free to pay down your higher interest loan. This is especially meaningful if you have large differences in your interest rates. Let's look at an example of someone with $100,000 of student loans spread equally at 8.75%, and 4% and the differences an income driven plan can make. In this case, we are going to assume the borrower is eligible for Revised Pay AS You Earn which caps payments at 10% of income.

 Plan

Standard Payment

REPAYE

Amount saved

Monthly Payment $1,150 $266
Additional Payment $884
Payback Period 10 Years 9 Years 1 Year
Interest Paid $38,000 $23,251 $14,749

 

Using REPAYE and paying $884 per month to the higher interest loan allowed this borrower to save almost $15,000 in interest payments! This could go a long way toward a down payment on a house or even buy a nice car!

While Income Driven Plans aren’t for everyone, I hope you can see the benefits and the flexibility that they can create for many borrowers. Please see the table below for more details and specifics on the three most commonly used plans. Contact a financial planner about which one is right for you.

The Three Types of Income-driven Student Loan Repayment Plans

Plan PAYE IBR REPAYE
What is it? Pay as You Earn –

Limits payments to the lower of 10% of borrower's income or the standard payment plan.

Income-Based Repayment –

Limits payments to the lower of 15% of borrower's income or the standard payment plan.

Revised Pay as You Earn –

Limits payments to 15% of borrower's (family if married filing joint) income.

Interest Adjustment Government pays first three years of interest on subsidized loans in excess of monthly payment Government pays first three years of interest on subsidized loans in excess of monthly payment Government Covers First Three Years of Interest on subsidized loans not covered by payment and 50% of interest not covered thereafter.
Taxable Forgiveness Taxable Loan Forgiveness After 20 Years Taxable Loan Forgiveness After 25 Years Taxable Loan Forgiveness After 25 Years
PSLF Forgiveness Qualifies after 10 Years Qualifies after 10 Years Qualifies after 10 Years
Qualifying Loans
Federal Direct Loans
FFEL Loans* X X X
Perkins Loans* X X X
Parent Plus Loans* X X X
Private Loans X X X

*Can be eligible if consolidated into a Federal Direct Consolidation Loan

Refinance Your Student Loan With SoFi

If you are thinking about how to better manage student loans, you should know about SoFi. SoFi is a social lending company that provides rates as low as 1.9% variable with auto pay and 3.5% fixed with auto pay. You can save thousands simply by refinancing your student loan interest rates. They can offer lower rates than the rest because they analyze you based on merit, quality of employment, and education besides just a credit score and financials. There are zero origination and prepayment fees. Offer terms are from 5, 10, 15, 20 years in both fixed and variable. Both private and public student loans can be refinanced.

Besides low rates, one of their best features is their unemployment benefits. If you lose your job while repaying your loans, you don’t have to pay your loan for up to 12 months while you look for a new job! Interest will still accrue, but having this cash flow break is a huge benefit. They also provide job assistance guidance as well. You can refinance or apply for a new student loan here. Beat Student Loan readers receive a special $100 welcome bonus if you go through our exclusive link.

Interested in refinancing student loans?

Here are the top 5 lenders of 2019!

BankTermsOpen
CIT BankWant to earn 7x the national interest rate on your savings from now on? No monthly service fees. $100 minimum to open your account. FDIC insured up to $250,000. Simple and smart.

LEARN MORE

Company
Variable Rates (APR)
Fixed Rates (APR)
Eligible Degrees
Company Website
CommonBond Refinance Student Loans
2.76% – 7.03%
3.18% – 7.25%
Undergrad
& Graduate
VISIT SITE
Earnest Refinance Student Loans
2.55% - 6.97%
3.89% - 7.89%
Undergrad
& Graduate
VISIT SITE
LaurelRoad
2.80% – 5.90%
3.37% – 7.02%
Undergrad
& Graduate
VISIT SITE
SoFi Refinance Student Loans
2.58% – 7.07
3.25% – 7.25%
Undergrad
& Graduate
VISIT SITE
LendKey Refinance Student Loans
2.56% – 7.94%
3.15% – 8.12%
Undergrad
& Graduate
VISIT SITE

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Clint Gossage
Clint Gossage is the founder of CMG Financial Consulting, a financial planning and wealth management firm that specializes in providing financial advice to young professionals around the country.

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