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Loan Forgiveness Program | How to, When & How Much Each Month

female university student using tablet computer listening musicPaying back a federal student loan is one of the most difficult tasks to achieve.

One needs to understand how to repay your federal student loans. This can help in saving you a lot of money and time. The best way to go about the repayment is finding the perfect repayment plan for you.

There are a number of options out there in the market that may confuse you.

It is very important to spend some time and check out what they offer. Knowing the loan repayment terms in detail is essential before settling down with any one of the options the companies are offering.

Repayment Plan

One of the best things to do is to always work closely with your loan servicer and choose the perfect federal student loan repayment plan.

If you are very careful at the time of selecting your loan, you win half the game. The thing to consider at this time is not only the amount you are getting, but also how easily you can pay it back. A convenient repayment plan will make your life easy in coming years.

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There are various repayment plans that can best suit you. Repayment plans make your payments a lot more affordable and gives you sufficient time to repay your loans, without putting you in a cash crunch. Once you select a particular repayment plan, start repaying your student loan, you can still change the repayment plans any time you wish.

There are various repayment plans available that can suit your income and the duration according to your convenience. Always select a program that offers you enough time to pay back the loan in an efficient and convenient manner. This helps you to get through with your studies without any stress.

Standard Repayment Plan

If you are planning to get a direct subsidized loan, direct unsubsidized loan, subsidized federal Stafford loan, unsubsidized federal Stafford loan, any plus loan, or any loan consolidation, then you can opt for this plan. Monthly payments are a fixed amount and the repayment duration can go up to ten years.

If you have consolidated your loans, then the duration can be up to thirty years. All borrowers can apply for this plan and will end up paying a lot less than under other repayment plans. This is a very convenient option since it gives you ample time to pay back your loan. It considerably reduces the monthly amount that you need to pay back.

3 repayment terms

Graduated Repayment Plan

Direct subsidized loans, direct unsubsidized loans, subsidized federal Stafford loans, unsubsidized federal Stafford loans, all plus loans, and all consolidation loans are covered under this plan. On selecting this repayment plan, your payments are lower at the start and gradually keep increasing every two years. The repayment duration can go up to ten years and up to thirty years for consolidated loans.

All borrowers are eligible to apply for this plan and you have to pay more than a standard ten-year repayment plan. Although you can begin to pay this loan post your graduation, the interest on this loan is high. This means that you will end up spending a lot more than you actually borrowed.

Many families are not very well to do but have children who are exceptionally bright. If they want to pursue a course at some exclusive college or University and a lucrative career this is the best plan to opt for. There is no stress about paying the loan during your graduation years. You can graduate, get a job and then pay back the loan.

Extended Repayment Plan

The loans that are eligible under this plan are direct subsidized loans, direct unsubsidized loans, subsidized federal Stafford loans, unsubsidized federal Stafford loans, all plus loans, and all consolidation loans. You can either choose a payment method with fixed payments or a graduated plan.

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The repayment duration can go up to twenty-five years under this plan. For direct loan and FEEL borrowers, your outstanding debt must be more than $30,000 outstanding debt to qualify for this plan. Your monthly payments under this plan will be a lot lower than a ten-year standard plan or even the graduated repayment plan.

You will end up paying cumulatively a lot more than the standard ten-year plan. This is a flexible plan and it makes sense to a lot of loan seekers. That’s why it’s a popular choice among student loans these days.

Pay as You Earn Repayment Plan (PAYE)

The loans that are eligible under this plan are direct subsidized loans, direct unsubsidized loans, direct PLUS loans given to students, and direct consolidation loans that exclude PLUS loans that were given to parents. The maximum monthly payments under this plan will be 10% of your income.

Payments are reassessed and recalculated every year based on your updated income. The monthly payment under this repayment plan will be less than the ten-year standard plan. However, cumulatively you will pay more than the ten-year standard plan.

This type of loan repayment program takes the graduate loan program to the next level. This loan gives students the choice of first getting a job and then paying back the loan which takes the pressure off the student’s shoulders. It is a highly beneficial option for any person who has a financial crunch and needs to start earning in order to pay back.

Income-Based Repayment Plan (IBR)

This repayment plan takes into account your family income and helps you make income-based payments. Your monthly payment will be about 20 percent of your income. Repayments are reassessed every year based on your family size and updated income details. Under this repayment plan, your monthly payment will be more than the standard ten-year plan.

Budget Finance Cash Fund Saving Accounting Concept

This is another very interesting loan option that enables you as a student, to plan a secure future along with your career goals. This loan plan ensures you will not have to spend your entire salary on paying back your student loan. It helps you to grow and plan a promising life ahead with ease.

This loan plan does make a lot of sense since you know that your future is secure. Although you are spending a little more on the repayment plan, you have money in hand for various other things. You will save enough money to buy you a house, a new car or handle any other unforeseen expense.

Cancellation of Loan

There are certain cases where you can have your federal student loan canceled, forgiven or even discharged. Having your loan canceled, forgiven or discharged means that you are not expected to repay your loan anymore. There are many reasons attributed to reach this loan status.

The most common ones are the inability to complete your education, to find a related job or being unhappy with the course pursued. There can be many other unfortunate personal conditions that lead to cancellation of your federal loan. If you have taken any of the following loans, you may get a loan forgiveness in future. More info on this video about Student Loan Forgiveness: Obama’s Debt Solutions.

Teacher Loan Forgiveness

This forgiveness plan is for a teacher who is also a new borrower. If you have been teaching full-time in a secondary school, low-income elementary school or educational service agency for five years, you can receive forgiveness. The amount of forgiveness can be up to $17,500 of under unsubsidized or subsidized loans. No PLUS loans are included in this case.

Public Service Loan Forgiveness

You can be eligible for forgiveness on the remaining amount of your loan if you are employed in a few public service jobs. Additionally, you must have made at least 120 payments on your direct loan. Payments made under certain repayment plans can be counted towards the 120 payments. One important requirement is not defaulting on the forgiven loan.

Permanent Disability Forgiveness

A total and permanent disability (TPD) discharge gives you relief from repaying a direct loan, a federal family education loan (FEEL), or a Perkins loan. This forgiveness can be granted on the basis of your permanent disability. Information must be provided to the US Department of Education (ED) and prove that you are permanently disabled. The ED will evaluate all the information given by you to determine if you qualify for forgiveness.

1 bad loans cdredit for studentsYou can prove your disability by showing that you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits. You can also prove your disability by submitting a disability certificate from a physician. The certificate must state that you are unable to engage in any activity because of physical or mental impairment. If you are ailing with this disability for a period of fewer than sixty months or can result in death, you qualify for this forgiveness.

Obama Student Loan Forgiveness

The Obama Student Loan Forgiveness Program is another name given to the Federal Direct Loan Program. The program was renamed after President Obama reformed the Direct Loan program in 2010. Some of the changes made by President Obama were:

  • The Federal government will stop providing subsidies to all private lending institutions for federally backed loans.

  • New borrowers after 2014 will be eligible to make payments based on only 10% of their income.

  • New borrowers will be eligible for student loan forgiveness after a period of twenty years instead of twenty-five years.

  • The money will be used to help poor and minority students.

Download: Income-Based (IBR)/Pay As You Earn/Income Contingent (ICR) Repayment Plan Request PDF

Loan Consolidation

Loan consolidation can simplify and lower your payments; however, you will lose out on some benefits as well. A direct consolidation loan enables you to combine multiple federal education loans and consolidate it into a single loan. This results in a single monthly payment instead of multiple monthly payments, which is lot more convenient to manage. No application fee is charged for consolidation of your federal educational loans into a direct consolidation loan.

If you have made up your mind for consolidating your loans, take some more time and give it a thought again. It can help simplify your loan repayment and can lower your monthly payments by extending your repayment duration up to thirty years. You will also get access to various repayment plans that you were not eligible for, earlier.

Another benefit is switching from a variable interest rate to a fixed interest rate. However, increasing the duration of the repayment period means making more payments and paying extra interest. Compare your current monthly payments to the consolidated monthly payment before consolidating your loans.

You should also realize that you will lose any borrower benefits after loan consolidation. These can include discounts on interest rates, loan cancellation benefits, or principal rebates. Another safe way of lowering your monthly payments without loan consolidation is re-evaluating your income and budget. Loan consolidation cannot be reversed and the loans that were consolidated are considered paid off.

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Almost all federal student loans are eligible for consolidation, except for private education loans. If you have defaulted on any of the loans, you have to meet certain criteria before having loan consolidation. The loans that can be consolidated are:

  • Direct Subsidized Loans

  • Subsidized Federal Stafford Loans

  • Direct Unsubsidized Loans

  • Unsubsidized Federal Stafford Loans

  • PLUS loans from the Federal Family Education Loan (FFEL) Program

  • Direct PLUS Loans

  • Federal Perkins Loans

  • Supplemental Loans for Students (SLS)

  • Health Education Assistance Loans

  • Federal Nursing Loans

  • A few existing consolidation loans

Final words

At the end of the day, there are so many loan plans that students can choose from to make pursuing a career of your choice, a lot easier. With the multiple options in your hand, you can pick one that suits your needs the best and get the education you always wanted.

It is very important to be aware of the different kinds of student loans available and their repayment options to strike the best deal. While a loan advisor will try to push a loan plan that is more beneficial to his company. It is important to know your right, where you stand and what is best for you.

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