I am often asked about loan types, lenders, repayment plans, and even loan consolidation. I have written previous posts on the top lenders for this year, and loan consolidation, so today I wanted to talk a bit about a certain loan type and the repayment plans: Federal Student Loans.
Also known as Direct Loans, including Stafford loans, or fondly referred to as “FAFSA loans” from many of my clients, federal loans are the first recommendation I make for clients to use as part of their tuition payment strategy, if they consider loans. As college tuition prices seem to be ever increasing, student loans are inevitably just another part of the process for many families.
Meanwhile, the federal loan program has become more and more “simplified”, which as far as I can tell, just means there are now fewer options available for consumers that are trying to cover those high costs of their education. What I do see more commonly is federal lenders being able to make up for it (somewhat) during your repayment.
Let’s talk about some of the repayment plans available:
– Standard. A typical federal loan will come due 6 months after a student’s graduation date (or qualified student status change). Likely, you’ll have a 10-year repayment term with equal monthly payments for the entirety of your term.
– Custom. If a monthly chunk payment doesn’t work for you, you can ask to pay weekly, or bi-weekly, instead. Sometimes it helps to break that up into multiple payments per month (this can be personalized based on your pay schedule).
– Income Based Repayment. For some people that have low-income after college, or high qualifying expenses, you may be eligible to use an income-based repayment plan. You should ask to pay no more than 10% of your monthly income in total student loan payments. Your lender should be re-evaluating this every year for you (there should be a re-application process that you’re made aware of and completing), and giving you a new payment amount every year based on your current income, with gradual increases expected.
– Federal Loan Consolidation. Generally, your federal loans can be consolidated without paying additional fees or interest. Sometimes, this may just mean that your lender actually keeps track of each individual loan, its terms and interest rates, but they’ll create a plan for you to have only one payment amount each month.
Keep in mind that not all loans are created equal, and these repayment terms may only be available for federal student loans. However, at the end of the day, I’ve found that any lender just wants to be able to collect your payment in some form or another and if you find a plan that works for you, it’s a win-win for you both!