Repayment plans for student loans typically last between 10 and 30 years, depending on the kind of loan you have and the lender servicing it. Selected federal loan servicers provide federal loans, which are supported by the Department of Education. There are state-sponsored student loan programs in some states, and the state or a private loan servicer may handle the loans. Several private, for-profit lenders provide private loans.
Before the debt is paid off, borrowers of federal student loans are free to modify their repayment schedule. Borrowers, whether private or public, might be able to modify their monthly payment schedule, but this will depend on your lender and other individual circumstances.
If your current monthly payment is no longer convenient for you, here’s how to modify your student loan repayment plans, what the procedure entails, and any potential restrictions.
How to change your student loan repayment plan
- Choose the plan that’s right for you. Enter your loan details into the Federal Student Aids Loan Simulator to calculate potential savings on various plans.
- Contact your servicer. Choosing a different student loan repayment plan is always free. You don’t have to pay a third-party debt relief company. The business that oversees your federal loans on the government’s behalf, known as your loan servicer, can assist you.
- Complete any necessary paperwork. If you wish to choose an income-driven repayment plan or consolidate your student loans, you must submit an application. These forms are available on paper from your servicer, but it’s preferable to fill them out at studentaid. gov.
- Check payment due dates. Switching payment plans can take time. For instance, according to the Consumer Financial Protection Bureau, borrowers who submit applications for income-driven repayment may occasionally face considerable delays and, in certain situations, not hear back from the lender. Make sure you know when your next payment is due so you don’t accidentally fall behind.
- Update auto-pay, if needed. Usually, a new servicer won’t accompany your new student loan repayment plan. But you can switch student loan servicers through consolidation. Make sure to provide your new servicer with your payment details if you autopay your loans.
How often can you change student loan repayment plans?
Plans for repaying federal student loans can be adjusted as frequently as necessary. However, since higher interest can accumulate on your loans, paying less every month will probably result in paying more overall.
Let’s take an example where you owe $30,000 with a five percent interest rate. 50%, you’re single and your adjusted gross income is $40,000. The regular repayment schedule calls for $326 monthly payments plus $9,069 in interest over a ten-year period. Your initial monthly payment under Saving on a Valuable Education, or SAVE, drops to $60; however, over the course of about 12 years, you would pay $15,895 in interest. A rule from November 2022 states that, with the exception of abandoning an income-based repayment (IBR) plan, changing repayment plans no longer results in the capitalization of outstanding interest. Interest capitalization is the process of accruing interest on a larger balance in the future.
How to change your payment amount
The following methods may allow you to adjust your payments to a lower amount:
- Pay based on your income. Pay As You Earn, income-based, income-contingent, and SAVE are the four income-driven repayment plans that the government offers. These payment plans cap your monthly payments at 2010% to 2020% of your discretionary income and forgive the remaining loan balance after 2020% to 2025 years of on-time payments. If you are qualified for Public Service Loan Forgiveness, you ought to convert to an income-driven plan.
- Decrease payments temporarily. With a 10-year plan called graduated repayment, you can begin making smaller monthly payments at first and then increase them every two years. Generally speaking, you will pay more than you would have under the normal plan when your loan term expires.
- Lower payments for longer. Extended repayment allows you to extend the repayment period to a maximum of 25 years and choose between fixed or graduated payments. Only borrowers with outstanding direct loan balances of more than $30,000 are eligible for it. Another option is to combine your student loans, which could result in a 30-year repayment schedule.
Generally speaking, changing repayment arrangements has no bearing on your eligibility for student loan forgiveness.
To qualify for Public Service Loan Forgiveness, for instance, only standard and income-driven payments count toward the 120 total required payments. After making 100 more payments under the income-driven plan after starting repayment on the standard plan and meeting all other program requirements, you would be qualified for PSLF.
In a similar vein, all contributions made to income-driven plans are deducted from the plans’ forgiveness after 20 or 25 years. For instance, you sign up for SAVE after paying for Pay As You Earn for ten years. Depending on the type of loan you have at that point, you might only need to make 10 or 15 more years of payments before forgiveness begins.
Consolidation is an exception. Consolidation erases any payments you made on those initial loans that qualified for forgiveness because it replaces your current debt with a new loan. Consolidate early in repayment if you intend to ask for forgiveness so that the maximum number of payments can be applied toward that objective.
The Department of Education has been reevaluating which payments qualify for income-driven repayment loan forgiveness since the summer of 2023.
Counting payments made for some commercially held loans prior to consolidations toward income-driven repayment and Public Service Loan Forgiveness is part of this reexamination. The deadline for borrowers to apply for consolidation and benefit from the adjustment is April 30, 2024.
Should you refinance your student loans?
Refinancing your student loans may also result in lower monthly payments, contingent on the conditions of the refinanced loan. Refinancing federal student loans can be risky since you won’t be able to take advantage of programs like Public Service Loan Forgiveness and income-driven repayment.
Private student loans don’t come with those benefits. If you’re having financial difficulties, some private lenders do offer repayment plans that allow you to make interest-only payments for a predetermined amount of time. But those options will increase the amount you pay overall. If you are eligible for a lower interest rate, refinancing your private student loans is a better way to lower your payments.
How much could refinancing save you?
FAQ
Can you choose your student loan repayment plan?
Consider choosing one of the Income-Driven Repayment schemes. These plans provide more affordable monthly payments as they cap your monthly payment at between 10% and 20% of your discretionary income, depending on the plan. Remember that it might take longer to pay off the debt if the monthly payment is smaller.
What happens if you select a repayment plan with a longer term for your loans?
For instance, you can pay less each month if you enroll in a plan with a longer repayment period, but you will ultimately pay more interest. The Federal Student Aid Loan Simulator tool allows you to compare the total costs of repayment. To change your repayment plan, contact your loan servicer directly.
Can you switch from save plan to standard plan?
Some borrowers may find that their monthly payments under SAVE are greater than those under the Standard 10-year plan. You can always go back to the Standard plan if this occurs to you.
Read More :
https://studentaid.gov/help-center/answers/article/how-to-change-repayment-plan
https://www.usnews.com/education/blogs/student-loan-ranger/articles/when-how-often-to-change-the-repayment-plan-for-your-federal-student-loans