Before settling on any particular mode of student loan repayment, careful weighing of the available options is very vital. There are two main factors that will inform your decision on what option to take. These are; the amount of time given to completely repay a loan and the ratio of the principle amount to interest charged per payment.
The options that one might settle upon for making the student loan repayment are quite a number.
First of all, one might opt for standard student loan repayment method. In this case, the monthly payments are very high. However, the number of years of repayment reduces dramatically to only ten years. Consequently, the overall debt that one has to settle also decreases greatly. In some circumstances, a student might have taken a loan whose interest is not fixed. When such is the case, the monthly payment will vary from time to time.
At times, one may decide to lengthen the student loan repayment period due one reason or another. This method is commonly referred to as extended payment. When prolonging the payment period, the monthly amount supposed to be paid is greatly reduced. The only bad side to this mode of payment is its net effect on the overall debt. It becomes quite a lot in comparison to the initial standard payment.
In most cases, graduates enter the job market at a very low level and then climb up the career ladder. This also applies to their salaries. At the entry level, they might be earning very little but later start earning better as they get promoted. If this is your possible career outlook, then the graduated student loan repayment method is bound to work best for you.
Another common student loan repayment method is the income based payment.
Just as the name suggests, the amount to be paid will depend on one’s salary. This mode of payment has two further choices. For those that had secured FFEL loans, the monthly payment would be based on the expected monthly gross income. On the other hand, some might have gone for direct loans. For such cases, one might be eligible for as low as zero payments depending on one’s salary. The payments increase as the income increases. However, the payments must not exceed 20 percent beyond the poverty level. For both these choices, the student must provide all the necessary financial details, including tax returns that have been filed, to the lender as proof of eligibility into this kind of student loan repayment method.
The last method is the Perkins student loan repayment method. In this case the government determines a minimum monthly amount to be paid. For Perkins loans and loans taken before the 1st of October 1992, the amount is 30 dollars and 40 dollars thereafter.
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