In the scenario above, the Revised Pay As You Earn, or REPAYE, plan has the highest payments, the shortest timeframe and the smallest total amount repaid. It’s the one income-driven plan that most Direct loan borrowers are eligible for. REPAYE caps monthly payments at 10% of your discretionary income and forgives your remaining balance after 20 years of payments, so this can be helpful for graduates with lower incomes. The extended repayment plan is the smallest monthly payment with the longest time frame to pay off your loans, but the downside is you’ll pay almost an additional $10,000 over the repayment period. “When you have a higher-than-average income, an income-driven repayment plan could be the fastest way to get rid of your debt – even quicker than on a standard plan,” Helhoski says. “That also means your monthly payments could be higher than on a standard plan since the amount you pay corresponds with your income. However, a plan like REPAYE will still provide a critical safety net if you lose your job or your income drops.” An income-driven plan like REPAYE is also the only one that will ensure your payments are eligible for Public Service Loan Forgiveness if you’re working full time for an eligible employer. If you take on loans from private lenders, you may want to consider refinancing your student loans for a lower interest rate, which depends on your credit score. Proceed with caution when it comes to refinancing federal loans, though, as you could lose access to income-based repayment programs as well as potential student loan forgiveness.
Erin El Issa writes for NerdWallet.
The article College-Bound Grads Could Exit With $38K Student Loan Debt originally appeared on NerdWallet on May 4, 2021.
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