As many student debt borrowers already know, individuals have many repayment options when paying off their student debt. Some repayment plans increase the monthly payment amount over time, and this may be helpful, since borrowers usually earn more money over the course of their careers. Other repayment options allow borrowers to pay off their student loans over different time periods, usually between ten to twenty years. Of course, the more time an individual has to pay off student loans, the lower the monthly repayment amount will be. Nevertheless, even though it might be easier to select an extended repayment option, student debt borrowers should keep the standard repayment plan of ten years whenever possible.
Before student debt borrowers choose a repayment option, they are typically placed on the standard repayment track by default. Although repayment terms may vary from lender to lender, the standard repayment plan usually requires student debt borrowers to repay their student loans over ten years.
For me, it was easy to keep the standard repayment plan, since this was the plan assigned to me by default. Since I was placed in a plan that had me repay student loans over ten years, and my total debt was massive, the monthly payments were really high. In fact, I am pretty sure that I owed around $2,100 a month under the standard repayment plan when I first started repaying student loans.
Of course, seeing this monthly repayment amount gave me an intense feeling of dread. I could not imagine how I would ever be able to pay this amount each month, since I had to worry about rent, food, utilities and other expenses on top of this debt. I was extremely tempted to select an extended plan so that I could give myself some breathing room with my finances.
However, I decided that if I was ever going to repay my student loans within a reasonable amount of time, I was going to have to extend myself beyond my financial comfort zone. Requiring myself to make that massive student loan payment each month ensured that I would be more disciplined with my finances, and not spend money frivolously. If I selected an extended plan, it could have been easier to get away with wasteful spending, since there would be less consequences. However, setting that high monthly repayment amount ensured that I stayed within my budget each month.
For the remainder of my student loan saga, I made sure to keep the standard repayment plan. Although that monthly repayment amount hung over me like a Sword of Damocles, I made sure to keep my commitment to repay this amount of my debt each month. As I paid off some of my smaller student loans, the monthly repayment amount began getting smaller and smaller. Eventually, this amount was as low and lower as it would have been if I selected the extended repayment plan at the beginning of my student debt repayment saga. As a result, it should be kept in mind that even if you keep the standard repayment plan, your student debt burden should get easier over time.
Of course, there are certain instances when it does not make sense to keep the standard repayment plan. For instance, if you run into financial trouble, it might make sense to select an extended repayment plan for a brief amount of time.
Many lenders allow borrowers to apply for forbearance during tough financial periods, which means that a borrower does not need to make payments on their debt during the forbearance, usually no longer than six months. However, even though payments are not required during this time, interest will continue to accrue. If you have a massive amount of student debt like I did, interest can accrue at an insane rate, and forbearances can significantly add to your student debt burden.
Selecting the extended repayment plan for a short amount of time is better than applying for a forbearance, since you will at least be paying some of your debt. Although more interest will accrue on your debt under an extended repayment plan, this pales in comparison to the debt that would accrue if you apply for a forbearance. Paying less debt is better than repaying no debt, and choosing an extended repayment plan during financial difficulties is a viable option.
Of course, it is also worth mentioning that some student debt borrowers cannot keep the standard repayment plan due to a number of other circumstances. Some borrowers do not earn enough money to keep the standard repayment plan, and can only make ends meet if they repay their debt under an extended repayment plan. Also, if you might come into money through an inheritance or otherwise, and you only need to pay off your student loans for a short while, you might have the luxury of not needing to pay off debt faster under a standard plan. Furthermore, everyone who is eligible for public service loan forgiveness and income-driven repayment should usually select those plans, since this offers lower monthly payments and debt forgiveness within a reasonable amount of time.
All told, everyone hoping to pay off their student loans early should keep the standard repayment plan. Selecting this plan will set a high repayment goal that will motivate you to stick to your budgets. Although it is easier to choose an extended repayment plan, picking the standard plan will help ensure you pay off your debt as soon as possible.