After College: Questions to Answer Before You Begin Student Loan Repayment

Did you complete college this past spring after borrowing from the Federal Direct Loan Program (FDLP)? If so, your government-hired loan servicer has or soon will contact you to arrange the repayment of that debt. So you’ve got some decisions to make.

Your servicer will send you detailed information on the FDLP’s 10-year Standard Repayment Plan (Standard Plan). It’ll use equal monthly payments to eliminate your debt within a decade. Student borrowers who earned bachelor’s degrees in 2018 owed $29,200 on average — generating Standard Plan payments of $309/month and a total repayment cost of $37,063 ($7,863 of 27% more than the amount borrowed).

But your servicer will also offer you ways to investigate all eight FDLP repayment plans, and you should do that.

Some of the other seven plans give you extra months to repay, lowering your monthly payments, and some allow you to begin working toward various forms of federal student debt forgiveness. But it’ll also take you longer and cost you more to pay off your debt under most of them.

Selecting the right repayment plan can be confusing. To clarify and simplify this decision, answer two key questions:

  • What are my present career, financial, and personal circumstances; and
  • How do I expect these to evolve in the future?

Two recent graduates illustrate this . . .

Drew

  • Career: June MBA graduate now working for large, national accounting firm. Hopes to stay long enough gain experience that’ll help him open his own firm.
  • Financial: $51,000 in FDLP debt. Earns $82,00/year. Expects steady salary increases. Wants to buy a new car and house next year.
  • Personal: Age 26. Engaged to a law student. Planning to marry after she graduates next spring.

The Standard Plan would require monthly payments equaling about 10% of Drew’s take home pay — pretty high since he’s just starting out. So his best option is probably the Graduated Repayment Plan. It’ll require initial monthly payments equaling 6% of his take home pay. They’ll rise every few years, but his debt will be gone in 10 years, freeing up capital he’ll need to begin his own firm.

Megan

  • Career: Got teaching degree in May. First grade teacher in small, rural public school. Loves teaching and hopes to spend her career there.
  • Financial: $31,500 in FDLP debt. Earns $35,00/year. Knows this will rise slowly. Hopes to someday buy a house.
  • Personal: Age 22. No marriage plans at this time.

Megan should consider the income-driven repayment plans. Whereas her monthly Standard Plan payments would exceed 16% of her current take home pay, three income-driven plans can drop them to a much more affordable 7% of that amount. They also position Megan to eliminate her remaining debt in 10 years via Public Service Loan Forgiveness.

So before you start making your student loan payments, think about where you are now and where you will be in the future. Doing this will help you pick the best repayment arrangement for you!

Next Wednesday we’ll begin exploring the terms and conditions of all the repayment plans available to you on your FDLP Loans.

If you’re looking for advice on repaying your student loans, contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

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