What are your repayment options when you take out a student loan?

If you’re considering taking out a student loan, you might be wondering how long you’ll have to pay it back. Usually, you’ll have 10 years to pay it back, but there are other repayment programs that you can choose from. For instance, an income-driven repayment program will let you pay back student loans over the course of 20-25 years instead of over 10 years. Here are the repayment options that are available:

1. The standard repayment plan

The standard repayment plan will give you 10 years to pay back your loan, and your monthly payments will remain the same during the repayment period. However, you’ll primarily pay interest when you first begin to pay back the loan, and you’ll mostly be paying principal later on.

2. Choose a payment plan that’s based on your income

There are several types of income-driven repayment plans for student loans. These are pay as you earn, income based repayment plans, and income contingent repayment plans. 

An income contingent repayment plan limits your monthly payments to 20% of your discretionary income or the amount that you’d pay if you had a standard repayment plan. You’ll pay the lesser of these amounts. 

If you choose an income based repayment plan, the amount that you’ll pay is directly associated with the amount that you earn each year. Pay as you earn plans will cap the amount that you pay per month at 10% of your discretionary income, and you’ll pay off the loan over a period of 20 years. 

If you choose a repayment plan that’s associated with your income, any remaining balance on your student loan after the repayment period is over will be forgiven. However, it’s important to note that you will pay taxes on the forgiven outstanding balance. 

3. Consider the revised pay as you earn plan

This type of plan is similar to pay as you earn plans, but the time period that you have to repay your student loans can be extended to 25 years. As with the regular pay as you earn repayment plan, all of the debt will be forgiven after the 20 or 25 year repayment period is over.