A Brief Glance at Student Loan Repayment Options

By: Megan Lehew, David Carter, Alissa Mattis, and Ethan Vandeck

Photo Credit: Frostburg State Graduation Facebook page

Students at Frostburg State University (FSU) may be eligible to receive Stafford subsidized or unsubsidized loans from the Federal Government. Subsidized loans do not accrue interest while a student is in school or in the 6-month grace period after graduation, whereas unsubsidized loans will begin accruing interest from the day they are disbursed and continue to do so even through the grace period.

In order to find out information about what kinds of loans the student has taken out, how much they are, the interest rate, and the servicer, the student should visit the Federal Student Aid website and create a log-in. Once the student has logged in, there will be a table which lists each loan by loan type, servicer, payment due date, outstanding principal balance, and outstanding interest balance (if there is any). Students can then go directly to their servicer’s website, create an account there, and manage all of their loans with that servicer.

Once the student has created an account, they can view their repayment options. One important option that many students don’t take advantage of is making a payment while they are still enrolled in school. If the loan is within 180 days of disbursement, any amount repaid towards it can be applied as a “refund”. This means that rather than being applied towards principal and interest (if any is accruing), the payment will go directly towards the principal balance of the loan, and the accrued interest will be recalculated as necessary. If the loan is out of its 180-day period, a student can still make a payment onto it to help reduce the balance owed upon graduation. Many servicers will even allow borrowers to allot how they want the payment to be applied - for instance, to the loan with the highest balance, or the loan with the highest interest rate. Student loans don’t have to be something that are forgotten about until six months after graduation when the first payment comes due!

Once that first payment does come due, however, borrowers have some options on how to repay it. Each loan servicer offers several repayment plans - many of them based on income. Listed below are some of the most common, and a borrower’s servicer should offer a majority of what is listed, if not all of them.

• Level: Borrowers will pay equal payments throughout the 10-year repayment period of the loan. This plan is based strictly on the loan balance.
• Graduated: The loan payments start at a lower amount and gradually increase, usually in 2-year increments, throughout a 10-year repayment period. This plan is also based strictly on the loan balance.
• Pay As You Earn (PAYE): The monthly payments are 10% of the borrower’s discretionary income and are recalculated annually based on income and family size. The borrower’s spouse’s income and student loan payments will also be taken into consideration regardless of how borrowers file their taxes. Any outstanding balance remaining after 20 or 25 years will be forgiven.
• Income-Based Repayment Plan (IBR): Borrower’s monthly payments are 10% - 15% of their discretionary income and are recalculated annually based on income and family size. Borrower’s spouse’s income and student loan payments are only taken into consideration if taxes are filed jointly. Any outstanding balance remaining after 20 or 25 years will be forgiven.
• Income-Contingent Repayment Plan (ICR): Borrower’s monthly payment is the lesser of 20% of discretionary income or the amount they would pay on on a fixed payment plan over 12 years. Payments are recalculated annually based on income and family size, and their spouse’s income will only be taken into consideration if taxes are filed jointly. Any outstanding balance remaining after 25 years will be forgiven.

Of course, there are pros and cons to each of the repayment plans, even those that are based on income and may seem like the better option. The decision of which plan to choose should be one that the borrower researches and weigh out, but it’s good to know that there are several options to choose from.

Another option for repayment if a borrower has loans with several loan servicers is loan consolidation. This eliminates making several payments each month to different servicers, and allows borrowers to have one loan with one servicer (so, only one monthly payment). If a borrower is struggling to make their payments, there are options for a deferment or forbearance (where the borrower is not responsible for a payment for a certain length of time, if they qualify). There are also certain options for student loan forgiveness if the borrower goes into a specific career path upon graduation.

Student loans don’t have to be a scary, confusing topic. With the proper tools, they can be easily understood and become less of a burden upon graduation.