After College: Is a Conventional Student Loan Repayment Plan for You?

Most or all your college debt is probably from the Federal Direct Loan Program (FDLP). Last Wednesday, we suggested you ask and answer two questions to help select strategies for repaying this debt — (1) what are my current career, financial, and personal circumstances; and (2) how will these to evolve over time?

Your answers will help you determine which FDLP repayment plan you should select. Four of these are what we call the government’s “conventional” repayment plans. We use “conventional” because these are the oldest federal student loan repayment plans, and the first of them mimics the repayment blueprint for most other consumer debt. Here they are:

Standard Repayment Plan

This approach requires you to pay the same amount (no less than $50) every month for up to 10 years, when your federal debt is paid-in-full. It usually features the highest monthly payments of all federal repayment plans, but requires you to devote the lowest share of your lifetime earnings to FDLP repayment and helps you eliminate your federal loans faster — unless you consolidate them, in which case you can get from 12 to 30 years to repay depending on your total college debt level.

This plan works best if you have a high salary and/or low FDLP debt and want to eliminate that debt within a decade.

Graduated Repayment Plan

Graduated repayment also eliminates your FDLP debt in 10 years — or more if you consolidate — but your payments start small and increase every two years. No payment will ever be more than three times higher than any other.

Graduated repayment is best if your salary’s low now, you expect pretty significant annual salary increases, and you want to eliminate your federal debt in 10 years.

Extended Fixed Repayment Plan

You can get an extended fixed plan only if you owe the FDLP $30,000 or more. Under it, your monthly payments are all equal but you get up to a 25-year repayment period. This reduces your payment amounts but increases your FDLP debt’s life and what you repay in total.

This plan works well if your salary’s already pretty high, you owe $30,000 or more, but rapid debt elimination isn’t important.

Extended Graduated Repayment Plan

Extended graduated payments also require $30,000 plus in FDLP debt, begin low, and rise every two years, with no payment being three times bigger than any other.

This is the plan for you if quick debt elimination isn’t important, your salary’s low now, but it’ll rise every year or two.

The Federal Student Loan Repayment Estimator will project the impact of each conventional repayment plan’s impact on your monthly FDLP repayment amount, length, and total. Try it out!

Next Wednesday we’ll explain the other four FDLP repayment plans.

College Affordability Solutions consults with student loan borrowers about repayment at no charge. Call (512) 366-5354 or email to schedule such a consultation.

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