Student loan repayment rules have been a moving target, and after a pause that took about three years, interest on federal student loans resumed last month, with payments beginning this month. Let’s take a look at some of the current student loan repayment plan options and outline a few steps you can take to manage your student loans.

Research Repayment Plans

There are several different options that borrowers have when it comes to choosing a repayment plan that works best for them. There’s a Standard Repayment Plan for those who would like to have their loans paid off within 10 years with a fixed monthly payment with interest.

There are also Income-Driven Repayment Plans that calculate monthly payments based off the borrower’s income with the goal of keeping payments affordable. One of the Income-Driven Repayment Plans is the SAVE Plan, where payments are recalculated each year and are based on income and family size.

Another type of plan would be the Extended Repayment Plan, which is a plan considered for those who may have higher earned salaries. Payments may be fixed and will ensure that the loans are paid off within 25 years.

Important Considerations for Student Loan Repayment

As you begin to prepare a strategy for loan repayment, there are two critical considerations:

Relationship between principal and interest: Your monthly payment is made up of by both principal and interest charges. While principal addresses the exact amount of money you borrow from the lender, interest represents the cost lenders charge you to borrow. Interest charges are calculated as a percentage of your principal, therefore, as you pay down your principal, you pay less in interest.

The type of student loan: Generally speaking, there are three types of Student Loan options and each treats interest rate charges a little differently. Subsidized loans have a fixed interest rate that only starts accruing when you graduate. Meanwhile, Direct PLUS Loans and Unsubsidized loans start charging interest while you’re still a student.

Repay Student Loans Strategically

With principal vs. interest and different loan types in mind, here are a few tips to help shape your student loan repayment strategy:

Prioritize Unsubsidized Loans: If you’re still in school and have an unsubsidized loan, try to start paying down the principle. While this can be tough as a student, paying down the principal early, helps to reduce the total interest accrued throughout the life of the loan.

Consider Consolidating Student Loan Debt: If you are unhappy with your loan terms or have loans with multiple lenders, debt consolidation may allow you to extend your repayment plan and lower interest rates and monthly payments. To understand your best option, Student Loan Consolidation can point you in the right direction.

If you’re a borrower who is having a hard time keeping up with payments or is not able to make payments, the U.S. Department of Education has an on-ramp period until September 2024 (for loans that were eligible for the payment pause). This period will protect borrowers from having a delinquency reported on their credit reports. Usually if you don’t make any payments on a loan, it gets reported to credit bureaus, which would ultimately do some damage to your credit score. Even though there is an on-ramp period, payments are still due, and interest will still continue to accrue. Your servicer may be required to increase your monthly payments to ensure you pay off your loans in time. Read all about the on-ramp period and general student loan repayment information here. 

For more helpful tips, check out our blog on Managing Student Debt to stay ahead of student loan payments.