Which student loan repayment plan is right for you - EXPLAINED!

hey smartypants you have eight different student loan payment options to choose from now that student loan payments are starting back up again lucky for you in this video I'm gonna explain your student loan repayment options so you can have a better idea of which payment plan is right for you be sure to watch this whole video because I'm going to explain a lot of different student loan repayment options and strategies which may save you thousands and take years off your loans I'm Kate the money librarian helping you feel smart about money if you don't trust Financial gurus but you want to get better with your money you are in the right place subscribe and better yet click the link below and to get great with your money via my useful and okay I'm gonna say it pretty funny emails everyone's situation is different this is informational and educational as always speak with the Department of Education and or your student loan servicer before you make any changes to your student loans as each of these plans come with fine print that I just can't go into and short video no there are three student loan repayment plans not based on your income if you are not going for pslf if you have a high income or if you just really hate your student loans and want to pay as little as possible in interest one of these might be right for you they're available to anyone with direct subsidized or unsubsidized loans subsidize and unsubsidized Federal Stafford Loans all the Plus loans and all consolidation loans direct or ffel these are the 10-year student loan repayment plan the graduated repayment plan and the extended payment plan the super vanilla standard 10-year repayment plan is actually one of my favorites you have one set interest rate you have one payment that's the same payment for 10 years every single month and after 10 years it's all paid off with this one you also pay the least in interest out of all of the student loan plans so that's what I mean when I say it's vanilla it's like vanilla in the absolute best way it's completely predictable and it'll cost you the least an interest it costs you the least an interest because it is the fastest you can pay your student loans without making any extra payments it is a really good option if you aren't eligible for any of the Forgiveness programs if you have a steady income you aren't really having trouble making ends meet if you just want to get rid of your student loans this is the plan for you probably if you want to speed up this clock and pay very little in interest you can also send them even more every month just be sure to tell them to apply it to the principal otherwise they may think it's simply an early payment to your next payment and apply it to the next payment instead of to your principal the graduated repayment plan and extended repayment plans aren't great options for most people in My Librarian opinion because they can extend your loans up to 30 years and when your loans are extended that long like you just pay absolutely Sky High Bonkers amounts in interest that said they can actually be really good for high earners who are having trouble making the ends meet they're usually your best options since they're the cheapest option for high earners I should say the cheapest monthly option for high earners they're cheaper monthly because they last years longer so you're usually paying so much more in total if you do like a 10-year graduated plan or like a 15-year extended plan then you won't end up paying that much more in interest the problem is when people pay for like 20 to 30 years that you get absolutely walloped with interest and you might regret choosing this path especially since the save plan which I'm going to talk about in just a minute forgives balances after 20 or 25 years so even if the save monthly payment is higher you end up paying it for five or ten years fewer I will link to the payment calculator in the description so you can find out what your payments would be on all the different payment plans the best thing you can do is to run the numbers and look at the benefits and drawbacks of each and then consider what does future you want now you to do I have a free cheat sheet that gives you the lowdown on 13 different federal student loan forgiveness programs what they are how to apply even common traps to avoid get it the link in the description if you're going for pslf if you don't have a high income or are having a hard time making ends meet you should probably be looking into the income driven plans there are five different income driven student loan repayment plans for all of them you do have to re-certify your income and household size every single year so your payment will change every single year honestly I have spent hours researching this stuff I'll make this easy on you if you're not high income and you need to reduce your monthly payments and your loans qualify the save plan is probably the way you want to go because your payments are just going to be the lowest with this plan they've really done an incredible job helping people to really really reduce their payments you can watch my video on the save plan where I go into more details about what it is and how it works if you want to learn more part of the reason it's so good is it is the only income driven repayment plan where your balance cannot go up if your payment is less than the interest accrued the government will pay the interest on all the other income driven repayment plans if your payment is less than the interest accrued your balance will go up even though you made the payment the reason it's so good is because it actually protects a far larger portion of your income from your student loan payments the portion of your income they take your student loan payments from is called your disk regressionary income I know you're like I'm falling asleep already but trust me this is a term that is gonna cost you thousands if you don't understand how this works so let's get into this a little bit if you have no discretionary income according to their calculations your payment could be zero dollars and still count to the 20 to 25 years forgiveness you get under the save plan so let me show you how Bonkers a difference this can make in your life I'm going to use the example of a two-person household making 70 grand a year with only undergraduate loans under the save plan they won't touch the first 225 above poverty line these people's discretionary income would then be twenty five thousand six hundred thirty their payments will be a hundred and seven dollars every single month next year in uh after summer of 2024 when it is fully implemented but this year during the partial implementation it would be 214 dollars and after 20 years totally forgiven under under ibr and Pay E ibr stands for income-based repayments and they're not letting anybody else into the payee program so that one doesn't really matter they use 150 of the poverty line so these imaginary people's discretionary income would be fifteen thousand dollars more forty thousand four hundred and twenty meaning their payments per month would be three hundred thirty seven dollars a month a hundred and twenty dollars more that's over fifteen hundred dollars a year more on the ibr slash payee plan so what does all this mean for you obviously the save plan just makes a lot more sense you pay less and then your loans are forgiven after 20 or 25 years so the only thing with this plan that I've sort of seen coming is you could run into an issue in a few years where if you make a lot more money the save plan payment may actually be more than in the 10-year standard repayment plan depending on your income your family size and the size of your student loans so then maybe you switch to the 10-year plan so that your monthly payments are lower but now you don't have that 20 25 year forgiveness and you have to pay off the student loans in full so like know that going into it if you're going for Public service loan forgiveness probably the save plan is your best option since as I discussed in this video most people who are going for pslf should be paying as little as possible per month because no matter what the balance is at the end of 120 qualifying payments it gets forgiven so why would you pay more if you have Parent Plus Loans your only income driven option is the icr plan under icr they calculate discretionary income as a hundred percent of poverty line using my example their discretionary income would be fifty thousand two hundred eighty dollars twice as much as under the save plan I suggest you use the loan simulator calculator to find out what your loan payments would be because you may also want to be looking at the graduated or extended pants if you have ffel or Stafford Loans they have a brand new income driven payment plan called the income sensitive repayment plan it is 4 to 25 percent of gross income they don't even consider the poverty line like it kind of makes you miss the Carefree days of discretionary income so a seventy thousand dollar income no matter the household size can have payments ranging from 234 dollars to fourteen hundred fifty eight dollars a month like but they haven't put out a lot of information on this plan yet unfortunately so I can't tell you much more what I can tell you though you can consolidate your loans into Direct Loans and then you'll have the other income driven repayment options however if you're going for Public service loan forgiveness or what your previous payments counted towards income driven uh repayment forgiveness you need to consolidate before the end of 2023 subscribe as I'm researching and writing a video just for you if you choose to go on an income driven repayment plan know that you could pay more overall than you would on the 10-year plan even though your monthly payments are less so what should you do right now hopefully this clarified which of the payment plans make sense for you I suggest you use the student loan calculator from the federal government that I've linked to in the description to find out what your payments will be on the different payment plans then consider things like your future income prospects whether you're going for Public service loan forgiveness and other financial goals you currently have to figure out which plan is right for you you can change plans at any time you can also make overpayments at any time just be sure to tell them whether or not you want it to go to your next payment or apply to the principal like subscribe share this with a friend who has student loans starting up let me know your thoughts in the comments cheers [Music]

Channel: The Money Librarian

Views: 28,367

Keywords: save student loan repayment plan, SAVE student loan program, SAVE student loan, SAVE student loan plan, student loans, save money on student loans, IDR repayment plans, idr repayment plans explained, PSLF, public service loan forgiveness, public service loan forgiveness program, SAVE program 2023, student loan repayment plans, student loan repayment plans explained, 10 year repayment plan, graduated repayment plan, extended repayment plan, Direct student loans

Id: SfuPciHkT1k

Length: 10min 59sec (659 seconds)

Published: Thu Aug 24 2023