Federal Repayment Plans, Ranked From Worst To Best | Student Loan Planner


Here is a ranking of
the major federal loan repayment programs worst to best along with an explanation
of why I think that. Now I’m not gonna get
into the nitty gritty of each, there’s actually
probably more repayment programs even than I’m describing. But I wanna hit the major
ones so that you can see which ones that you might be on, may or may not be a good idea. So the worst federal
loan repayment program that’s not forbearance or deferment because that’s not a repayment program, you’re just watching the balance balloon, is the extend program. This is a program that
allows you to put it on a fixed 25 year type
schedule and if you’re on this program it’s
because you want to pay less than the standard ten year, because that’s the one
they’ll default you to if you don’t say anything. So if you want to pay less, there’s a really simple solution to that. Okay, it’s called income
driven repayment programs. So, the extended program
is usually used by people who are not aware that they
have other options available and who are concerned that
they don’t wanna pay too much on their loans, but eventually they wanna pay them off, so it’s just a, basically
the extended program is kind of a proxy for folks that have really not ever thought about any kind of organized approach to their student loans. The graduated program
is also a bad program, but it is the second worst program. So the graduated program
is one that allows you to pay less now and more later so that you can pay your
loan off gradually over time, it’s the graduated moniker. So, the graduated loan program can come in a variety of lengths, but the one that a lot
of people will try to do is the 30 year graduated loan program, when they’ll consolidate their loans. Now the graduated program, again, is a program where
people are worried about their monthly payment. Now this is not a good program to be in because generally people
that are having problems with their monthly payment are
also making a lower income. So if you have struggles with making your student loan payment, then perhaps you need to be signed up for a different program. The next program to talk about is the income contingent
repayment program, or ICR. ICR is a program that
requires 20% of your income after deducting for the
federal poverty line. This is a lot of income
to be paying towards your student loans. The only people that should be using the ICR program are borrowers in the parent plus loan program, that’s it. If anyone else is using the ICR program, there’s probably some sort
of loan service or error that’s giving you a lower payment than they probably should be calculating. So the income contingent repayment program is generally not a good program to use. The standard 10 year program is a program that allows you to pay your
loans off over 10 years. The most useful aspect of
the standard 10 year program is using that for public
service loan forgiveness if you have an income
that’s too high to qualify except under, you know, under the usual income driven options. So that’s really the only
reason you should use standard 10 year. The standard 10 year’s
only available on loans that you’ve not consolidated. And the standard 10 year program generally means you have enough money to pay your loans off, and if that’s the case, then you probably should
be refinancing instead. The next on the ranking from worst to best is the standard 30 year program. Now this makes sense for
people who have a very low interest rate on their
federal student loans. This is typically people that have loans from the early 2000s, and if
you consolidate your loans, this is how you get access to
the standard 30 year program. You pay a flat monthly
amount to pay your loans off over a 30 amortization schedule, kind of like a 30 year mortgage. And that makes a lot of sense, honestly, to use that program if you have a very, very low interest rate. The problem is a lot
of people that use this actually have a high interest rate and are trying to pay their loan off, but they can only afford to
do it over a 30 year time schedule, which makes that
standard 30 year program bad, just like the other programs
we previously reviewed are not the optimal plan to choose. Next on the list is income
based repayment, or IBR. IBR is a program that
is 15% of your income, and they give you a
better deduction than the income contingent repayment
program does earlier. So the IBR program is lower
and it’s also a 25 year program and you can use it for things like public service loan forgiveness or just forgiveness in
general after 25 years where you might have to pay
taxes on the forgiven balance if you’re in the private sector. The IBR program was the
very first major income based program that exists, hence a lot of people tend
to swap out the term IBR for income based repayment, kind of interchangeably, even though income based repayment
options are more broad than that specific program. The second best income based option is revised pay as you earn. Now, this is the second
best program overall, if you’re counting, in the
federal payment programs rank. Now, the revised pay as you work program has interest subsidies
where if your payment is below the monthly
interest that accrues, the government pays 50%
of the remaining interest that your payment doesn’t cover. Now you can, by intents and purposes also pay extra on top of
what you’re required to pay, and still get that subsidy
since it’s calculated on a monthly basis at the
beginning of the 12 month period that your certification is good for. So most people that, you
know, have a low income that have extra money to pay would be well served in the revise
pay as you earn program to keep that required payment pretty low so that they can make excess payments and have a lot of that go to principle. So the revised pay as you earn
program is a good program to have, it’s also a better program
than income based repayment if your only option is
revised pay as you earn because it’s 10% of income, versus 15% of income, for IBR. Now the best federal repayment program that I think a lot of
people need to consider is called pay as you earn. The PAYE, or pay as you earn program is a program that is 20
years until forgiveness, it’s 10% of your income, there are no interest subsidies, like under the revised
pay as you earn program, but there is a positive
about pay as you earn, besides just that it’s 20
years until forgiveness, instead of 25, a big positive that’s very
overlooked about this program is you’re allowed to file taxes separately from your spouse and have
only your income counted instead of both of your incomes counted. That is a major deal, it’s a major positive
so that you’re able to basically pay only on part
of your household income instead of all of your household income. The revised pay as you earn program in contrast, counts your
entire household income no matter what. Now, recapping, ranking
from worst to best, we’ve got the worst, extended, graduated, ICR, standard 10 year, standard 30 year, the IBR, the repay, and the
pay as you earn programs. the IBR, the repay, and the
pay as you earn programs. Now, these programs can
often be used in various situations for people in different ways, and if you are confused as
a lot of people might be watching this, feel
free to reach out to us for a custom student loan plan. That’s what we specialize in
for thousands of borrowers. So, studentloanplanner.com is
the website to visit for that. If you have questions,
or if you wanna disagree with the ranking of worst to best federal repayment programs,
or if I left one out, feel free to comment
in the comments below.

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