When it comes time to repay your loans, you have several repayment plans to choose from. This is great news! But, which one is best for you? The answer depends largely on your financial situation and career plans, among other things. We’ll look at several types of repayment plans that are available, starting with the most common, called the “Standard Repayment Plan.”
The Standard Repayment Plan
If you don’t choose a loan repayment plan after leaving college, you’ll automatically be enrolled in this plan. This is a straightforward, no-frills, plan that requires the same monthly payment (principle + interest) over 10 years to your loan servicer (the company that manages your loan).
The advantage of this plan is that in paying off the loan quickly less interest (the cost to borrow) accrues (builds up) during the life of the loan. Sounds great, right?
The downside is that the monthly amount remains the same, which may be a struggle depending on your situation. This can be especially true when you’re just starting your career and money is tight. (Yes, there are ways to defer or suspend payments, which we’ll cover in another article). That said, if you feel pretty good about job prospects after college and your future monthly income, it makes sense to choose this plan and pay it off as quickly as you can.
Most importantly, read the fine print on whatever plan you choose. Understand what the rules are before agreeing to it. This way, you’ll avoid any unexpected surprises that could negatively impact you in the future.
Next up, Consolidation Loans. Are these a good idea or not?