Repayment Options for Federal Student Loan Borrowers

10/27/2023

 

If you’re a student in Minnesota and you’ve taken out federal loans to finance your higher education, you might be wondering how to start paying it back, especially with all the changes caused by the COVID-19 pandemic. Don’t worry! There are different plans you can choose from.

As you may know, the U.S. Department of Education’s COVID-19 relief for federal student loans has recently ended. Interest is now accruing for federal student loan borrowers who had benefited from a 0% interest rate and payment pause since March 2020. Payments restarted in October 2023.

Please note: The payment pause affected federal student loans only, which are not to be confused with private loans or loans you borrowed from the state, like the SELF Loan. There was no payment pause on these types of loans throughout the pandemic.

Not sure which type of loans you have? You can identify your loan types by logging on to StudentAid.gov using your FSA ID (account username and password) and selecting “My Aid” in the dropdown menu under your name. In the “Loan Breakdown” section, you'll see a list of each loan you received. You'll also see loans you paid off or consolidated into a new loan. 

If you are a student who borrowed federal loans, you’ll need to get in touch with your loan servicer to start making payments again. Check out these tips from the U.S. Department of Education.

You'll also need to select a plan that is managable for you to repay monthly. Most plans give you at least 10 years to pay off your loan. Here are several options offered by the U.S. Department of Education:

Standard Repayment Plan:

• Under this option, loan borrowers make fixed monthly payments for up to 10 years. This option is available for those who can comfortably manage consistent and regular payments and wish to clear their debts more quickly than other plans.
• One advantage of this Standard Repayment Plan is its simplicity. The fixed monthly payments make it easier for borrowers to budget and plan their finances, as they can estimate how much they will owe each month. It is essential to consider whether these fixed payments align with your current financial situation.
• If your income is expected to rise steadily or you are confident in your ability to make higher payments without undue financial stress, the Standard Repayment Plan could help you pay off your student loans effectively.

Graduated Repayment Plan:

• This plan begins with lower monthly payments that gradually increase every two (2) years. The plan is ideal for borrowers who expect their income to rise over time, allowing them to start with manageable payments before adjusting to higher ones. This option is particularly suited for recent graduates or individuals entering the job market, as it supports entry-level professionals who may start with a lower income that increases with workplace experience.
• As your income grows, so will your monthly payments, aligning your repayment schedule with your increasing financial stability. While the lower initial payments may benefit, subsequent increases may be steeper than expected. It is crucial to assess whether you believe your future income growth will be sufficient to accommodate the rising payments.
• If you anticipate confident career advancement and income growth, the Graduate Repayment Plan could be an excellent way to effectively manage your student loan payments.

Extended Repayment Plan:

• For borrowers with a substantial loan balance, this plan offers a repayment period of up to 25 years. Payments can be fixed or graduated, providing greater flexibility in managing monthly financial obligations. This extended timeframe can result in lower monthly payments, making it a suitable choice for those needing more financial flexibility.
• By extending their repayment period, borrowers can spread out their loan obligations over a more extended period, which can be helpful during financial uncertainty or career transitions.
• While lower monthly payments can provide temporary relief, the extended timeline means that you will likely end up paying more in total interest over the life of the loan compared to a standard or graduated repayment plan. Therefore, it is essential to weigh the benefits of lower monthly payments against the overall cost of the loan.

Income-Driven Repayment Plans:

• These plans consider borrowers’ income and family size, adjusting monthly payments accordingly. Options for income-driven repayment plans include:
  • Income-Based Repayment (IBR): Caps payments at a percentage of discretionary income and forgives the remaining balance after 20 or 25 years.
  • Pay-As-You-Earn (PAYE): Like the IBR but capped at 10% of discretionary income with forgiveness after 20 years.
  • Saving on a Valuable Education (SAVE): Capped at 10% of discretionary income. Capped payments are based on discretionary income by increasing the income exception to 225% of the poverty line based on family size. The SAVE plan replaced the Revised Pay-As-You-Earn (REPAYE) Plan in 2023.
  • Income-Contingent Repayment (ICR): Requires borrowers to pay either 20% of their discretionary income or a fixed payment over 25 years, with forgiveness available after 20 years

Public Service Loan Forgiveness (PSLF):

• Borrowers working in eligible public service jobs may qualify for loan forgiveness after making 120 qualifying monthly payments under an income-driven repayment plan while employed full-time by a qualifying employer.
• The PSLF process requires careful adherence to specific criteria to ensure loan forgiveness. Borrowers must choose an income-driven repayment plan and work for a qualified employer while making the necessary payments. One of the notable benefits of PSLF is that the forgiven amount is not subject to income tax.
• This program provides repayment flexibility for those dedicated to public service, such as teachers, nurses, government employees, and other non-profit workers, as it offers robust financial relief in exchange for dedicated contributions to society.

All these repayment options provide diverse choices for federal student loan borrowers impacted by the COVID-19 pandemic.

If you have any further questions about your repayment options or need additional information, visit the Federal Student Aid "Contact Us" webpage.

Relevant Links

Federal Resources

1. Federal Student Aid
   • Website: Federal Student Aid
   • This is the official site for managing federal student loans. It includes details about different repayment options, loan consolidation, and how to apply for financial aid.
      
2. StudentLoans.gov
   • Website: StudentLoans.gov
   • This site also provides federal student loan information, including tools for estimating loan payments.
      
3. Free Application for Federal Student Aid (FAFSA)
   • Website: FAFSA
   • Here, you can fill out the application for federal financial aid, which is the first step in qualifying for most types of financial assistance, including loans.
      

Repayment Calculators

4. Repayment Estimator
   • Website: Repayment Estimator
   • This calculator estimates monthly payments based on different repayment plans.
      
5. FinAid’s Loan Calculator
   • Website: FinAid
   • This is an independent calculator that helps you figure out your monthly loan payments.
      

Loan Forgiveness Programs

6. Public Service Loan Forgiveness (PSLF)
   • Website: PSLF
   • If you work in public service, you may be eligible for loan forgiveness after making 120 qualifying monthly payments.
      
7. Teacher Loan Forgiveness
   • Website: Teacher Loan Forgiveness
   • Teachers serving in low-income schools or educational service agencies may qualify for loan forgiveness.
      

Always remember to consult with a financial advisor or counselor for personalized advice.