Navigating Student Loan Repayment Plans

July 03, 2018 | by College Coach

Thinking of pursuing an MBA, but also among the 70 percent of college graduates carrying student loan debt?

Given that the standard repayment timeline is a decade, it’s not unreasonable to wonder about the feasibility of funding for business school while simultaneously paying back your student loans from undergrad. The good news is that payments on any federal student loans will be automatically deferred for the length of your MBA program (assuming you’re enrolled on at least a half-time basis).  And Subsidized Loans will be interest-free during your deferment! It’s a small mercy to concentrate on your studies without worrying about how to make your student loan payments during business school.

So while your loans are taken care of during your actual enrollment period, what about the months and years leading up to—and following—your MBA program? You may want to fast track repayment of your undergraduate debt loans as soon as possible to enter b-school debt free.  Or you may want to get your monthly loan payments as low as you can, so you can devote more cash flow to saving up for the MBA.  No matter what your repayment goals, there is a student loan repayment plan that will meet your needs.

The following repayment plan options are available for your federal student loans:

  • Standard: Amortizes your loan, so you pay an equal amount every month for 10 years, when the loan will be fully repaid. If you don’t request otherwise, Standard is the plan you’ll be placed on.
  • Extended: Borrowers with loan balances over $30,000 may extend repayment over 25 years, resulting in much lower monthly payments than on the Standard Plan, but much greater interest accrued over time.
  • Graduated: Based on the theory that earnings tend to increase over time, payments start out low and gradually increase over the course of 10 or 25 years.
  • Pay As You Earn (PAYE): Caps monthly payments at 10% of the borrowers’ discretionary net income and forgives any remaining balances after 20 years, but is only available to somewhat recent loan borrowers.
  • Revised Pay As You Earn (REPAYE): Expands most terms of the PAYE plan to all borrowers, recent or not, but closes the loophole which allows married borrowers who file separately to have their spouse’s income excluded from monthly payment calculations under PAYE. Under REPAYE, both spouses’ income is used to determine monthly payments, regardless of tax filing status.
  • Income-Based Repayment (IBR): Caps monthly payments at either 10% or 15% of borrowers’ discretionary income and cancels remaining balances after either 20 or 25 years, depending upon when loans were borrower.
  • Income-Contingent Repayment (ICR): Caps monthly payments at 20% of borrowers’ discretionary income and forgives balances after 25 years.
  • Income-Sensitive Repayment (ISR): Monthly payments are based upon borrower income, but can vary by lender. ISR is only available to borrowers of older FFELP Loans, a program which ended in 2010, so it is unlikely any recent grads will qualify for this program.

So while your student loan repayment options are plentiful, they’re also somewhat complicated.  For more information, check out the Federal Student Aid website or contact your loan servicer, who can confirm your eligibility for any given plan.

Take advantage of the fact that you can change your repayment plan at any point if your personal, professional and financial circumstances change.  For example, while you may need a low monthly payment PAYE or Extended Repayment Plan coming out of undergraduate school, post-MBA, your income may be sufficient to accelerate payments on a 10-year Standard Plan, if not quicker (there is no penalty for prepayment).

Before changing plans, however, be sure to utilize the Repayment Estimator on www.studentloans.gov. This handy calculator will estimate your monthly payments and interest paid under any eligible payment plan so that you can make wise repayment decisions.

 

Fortuna Admissions guest blog by Shannon Vasconcelos, Director of College Finance at College Coach. College Coach is the nation’s leading provider of educational advisory services to organizations and families.

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