As it becomes time to repay their student loan debt, most people have four student loan repayment options to choose from. These options are the standard repayment, extended repayment, graduated repayment and income-contingent repayment. Each one is meant to provide options that will keep student loan repayment from becoming an unmanageable burden. As with any loan repayment, it is always best for one to speak with the lender if repayment is becoming a burden. Many times, lenders are willing to institute new payment arrangements that are mutually beneficial.
Standard repayment plans are the most basic of all student loan repayment options. This type of plan involves simply taking the amount of debt and interest and dividing it over a period of 10 years. Although this plan means higher monthly payments, the least amount of interest is paid this way, compared to the other options. In addition, the student loan debt is paid off in the shortest amount of time under this plan.
Extended repayment is another of the four types of student loan repayment options available. Generally used for larger student loan debts, this repayment plan allows a student 25 years to repay the student loans. Payments are either a flat monthly fee or start off small and gradually increase over the repayment period. Under this plan, each payment is smaller, but the long time period for repayment means that more interest is paid over the life of the loan.
Graduated student loan repayment options allow for a slow and steady increase of the monthly payment required to satisfy the student loan. A repayment period for graduated repayment lasts up to 10 years. Every two years, the monthly payment will increase. Each payment covers the interest that accrues monthly, and payments are never meant to be more than three times the initial payment during the term.
Income-contingent plans allow a student to use a plan that fits his or her income and family size. Specific formulas are used to calculate the amount of each monthly payment, taking into consideration monthly adjusted gross income of the student and his or her spouse, family size, amount of student debt, discretionary income and other factors. If interest is not covered each month, it is capitalized once each year, but there is a cap to this amount. The repayment period of this option is 25 years, and any debt left after this period might be discharged. Taxes might be required to be paid on this amount, even if it is discharged.