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Weighing Your Student Loan Options

The payment plan you pick could have a big impact later. Choose wisely.


Now that we are at graduation time, I know many people are starting to review their student loans and consider the various repayment options available to them. Deciding what option is right for you can have a major impact on your current and long-term financial goals, so it's important to study the options and make a good choice for your situation. Let's take a minute to review a few common options available, and the pros and cons of each.

The standard repayment plan. If you do not request to be placed on a different plan, you will default to this plan. With a standard plan, you will pay off your loans via equal monthly payments for 10 years. This option will require you to pay the least amount of interest, but comes with a higher monthly payment. If you have the means and can work the higher payment into your budget, this will be your best option, as it reduces the overall amount you'll pay and allows you to pay the loan faster. If you are able, I encourage you to consider paying a little extra each month towards the principle balance of your loan. This will supercharge your progress and pay them off even faster.

Income Driven Repayment. If you are unable to pay the standard payment plan, then the income-drive plan may be right for you. Under this plan, your monthly payments will be set somewhere between 10 and 20 percent of your discretionary income, and the term of the load will extend to 20-25 years. With this option, you will pay the most interest and your monthly payment may change every year, which can make budgeting a bit more complicated. After paying for the 20-25 year term, any remaining balance may be forgiven. This is not always the case and should not be your long term plan, however it can happen. Keep in mind that any amount forgiven is taxable.

If you are a government or nonprofit employee, you may be eligible for Public Service Loan Forgiveness. If you are one of the people eligible, you can have your loans forgiven after making 120 qualified payments. In this scenario, the amount forgiven is not taxable. Keep in mind that there are many stipulations that go into this program, and they can limit your career options and earning potential. Only look at this if it matches up with your career goals. Do not alter your career solely to peruse loan forgiveness.

I hope this provides some insight as you pick the best option for you. If you have any questions or would like a full review of your loans and financial picture, just let me know. I'm always here to help.

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