Editor’s note: Over the next couple weeks we’ll be talking about repaying your student loans — from types of plans to repayment strategies. Make sure to let us know if you have specific questions through comments!
Repayment is on its way, college seniors. You’ll be entering this new phase of your financial life in a few short months. If you need to learn about your options, we’re here to help.
Repayment plans for federal loans
If you’ve taken out federal student loans, there are a few different types of repayment plans:
- Standard — All federal loans are set up on this plan by default. It’s arranged so that each monthly payment is the same and that the loan will be paid off within 10 years. Monthly payments must be a minimum of $50. With this option, you pay the least amount of interest over the life of the loan.
- Extended — With this plan, you’ll stretch your payments out longer than the standard 10 years, up to a 25-year maximum. Payments may be the same amount each month, or they can start out lower and increase over time. This option may fit your budget better, if you can’t make the standard monthly payment based on 10-year repayment, but you may pay more interest over the life of the loan.
- Graduated — This plan lets you start out with lower monthly payments that gradually increase over time. It’s different than extended repayment, in that you’re still paying off the loan within a 10-year timeframe, but starting with lower monthly payments may better fit your budget right out of college. Again, with this plan you may end up paying more interest over the life of the loan.
- Income-sensitive — With this payment plan, your monthly payment will be adjusted each year based on your expected gross income from all sources. On this plan, you’ll still repay your loan over a 10-year timeframe and you may pay more interest over the life of the loan, but it may be a better fit for your post-college budget to begin with lower monthly payments. You’ll need to request this option annually. Each year you will need to decide if it still meets your repayment needs.
- Income-based — This option caps your monthly payments at a percentage of your discretionary income (based on income and family size). The monthly payment amount is adjusted each year based on these factors. This repayment options is available to federal loan borrowers, excluding PLUS loans for parents and Federal Consolidation Loans that include PLUS loans for parents. Your repayment period can exceed 10 years under this plain, and it may cost you more interest over the life of the loan.
Repayment plans for private student loans
If you’ve taken out private student loans, check with your lender about your repayment options. If you have a private student loan from Wells Fargo, head to our website or give us a call to talk through your options. Be sure to stay in contact if you think you’re going to have trouble repaying your loan.
Consolidating your loans lets you combine multiple loans into one new loan with one monthly payment. If you have more than one private student loan (whether they’re from Wells Fargo or other lenders), you can simplify repayment by consolidating. Again, you may pay more over the life of the loan with this option.