How do I choose the right student loan repayment plan?

Graduating can be an exciting time to celebrate your hard work throughout your years in college...

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...but it could also include those pesky student loans that awaitrepayment.

How you decide to go about repayment depends on many different factors that you should consider. Let's take a look at some.

Shaving off as much of your student loan balance is often a wise choice, but thinking about how much you can realistically pay each month is necessary.

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Start by taking a look at where you are financially.

Ask yourself questions like:

1. What do my monthly expenses look like and how much can I realistically allocate to my loan repayment?

2. How stable is my monthly income?

3. Do I have any additional outstanding debts or financial obligations that require attention?

Understanding your finances will help you select a repayment plan that aligns best with your goals and capabilities.

Focus on the present AND future

Your current financials should guide you in deciding your repayment plan just as much as your potential future finances. Both will have a big impact on your ability to repay your loans.

Career growth: Jobs will often have potential for salary raises and room for growth. If you anticipate significant increases in your earnings, you might consider opting for higher monthly payments to pay off your loans faster.

Job market: Researching job market trends in your professional field can help you determine possibilities of unemployment or unstable income. If it's an uncertain market, a more flexible plan could be the best fit for you.

Is postgraduate education in your horizons? New car? A home?

Thinking ahead can help you plan your spending and handle paying back loans while considering any new ones you may need.

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In many cases, the chances of getting auto loans or mortage loans approved will factor in your debt-to-income (DTI) ratio.

If you're planning a big purchase in the future, think about how much you want to pay each month to reduce the weight of your student loan debt. Many lenders will "want to see your DTI below 43% to qualify for a conventional mortage."

Offsetting a financial burden like student loans can open the door for these things.

Student loans usually come attached with interest rates. Interest rates are a percentage of the principal loan amount and is charged to the borrower.

Consider the possible impact on your total repayment over time and opt for plans that offer lower interest rates, ultimately saving you a considerable sum of money. The longer that you take to repay your loan, the more interest accumulates!

Common types of repayment plans

• Standard repayment: Lasts 10 years and has a fixed monthly payment minimum.

• Income-driven repayment (IDR): The monthly payment minimum comes out of a certain percentage of your income for 20-25 years. Once you're past your term, you can be eligible for income-driven loan forgiveness for the remainder.

• Graduated repayment: "Lowers your monthly payment minimums" but "increases the amount you pay every two years for up to 10 years."

• Extended repayment: Monthly payment minimums start lower but increase every two years for up to 25 years.

• Accelerated repayment: Consistently paying higher than the monthly minimum to decrease repayment time.

Lyla recently graduated with a master's degree and holds student loan debt of $15,000 at an interest rate of 7.5%. She is worried about the high interest rate and the amount of money that she will have to put in to repay this.

What is the most ideal repayment plan in Lyla's situation?

Thinking about how to approach student loan debt can be overwhelming! Don't be afraid to approach a student loan consultant to organize an ideal repayment plan that best fits your goals and needs.

Seeking guidance from professionals such as financial advisors and student loan consultants can help you gain insights into:

• The best loan repayment options

• Your potential eligibility for loan forgiveness programs

• Opportunities to save a significant amount of money.

With their familiarity on the latest regulations, policies, and forgiveness programs, you can be assured that they can provide accurate and relevant advice for your situation.

Student loan debt can be a steep uphill climb, but with the right amount of preparation, responsibility, and choice of repayment plan, you can eventually ease this financial burden off of your shoulders!