Repaying Student Loans: What Options Do You Have?
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Here's your money briefing for Friday, April 29th. I'm J.R. Whelan for The Wall Street Journal. All this week, we've been talking about some of the big questions around student debt, how to plan for it, how to make the most of it. And today, we wind up our special Student Debt Week series with the inevitable, paying it off. Now, there's been plenty of talk in Washington about student loans being forgiven, but widespread forgiveness may not be in the cards. So for most of us, it's time to consider repayment options.
You want to think about things like how you expect your income to change over time. Do you expect to get married in the near future? And if so, how much does your future spouse expect to make?
Our reporter Rebecca Ballhouse co-wrote the Wall Street Journal's Guide to Student Debt e-books chapter on repayment. We'll talk with her about what borrowers need to know after the break.
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All right, so you've gotten a higher education, took on some student loans along the way, and graduated with hopefully a well-paying job. Now it's time to pay the bill. A student loan is probably going to be one of the biggest financial obligations you'll ever face. So how should you think about paying it off? How do you choose the right repayment plan? And what about loan forgiveness? Is that a realistic option? Wall Street Journal reporter Rebecca Ballhouse wrote about this in the WSJ's Guide to Student Loans, and she joins me now to talk about it. Rebecca, thank you so much for being here.
Thanks for having me.
So first of all, Rebecca, when's the right time to start thinking about repayment? If you take out a student loan, do you have to make decisions about repayment at a certain point in the process?
So it's good to start thinking about these things as early as possible and trying to determine which plan might work the best for you. But for the most part, you won't start repaying your student loans until six months after you leave school. So you do have a little bit of time after you graduate where you can still figure out which plan makes the most sense for you. But it's at that six-month point that you'll want to have made a decision because otherwise you'll be automatically enrolled in this standard 10-year repayment plan.
All right, so the 10-year plan is one option, but can you give us an idea of the other types of repayment options that are out there?
Yeah, so there's a long list of possible repayment plans, and they all sound pretty similar. But to sort of break them down, the first is that standard 10-year repayment plan that I mentioned. There's also a graduated repayment plan, which sets monthly payments lower at first and increases them about every two years, again, with the aim of paying them off in 10 years. An extended repayment plan lets you pay either a fixed or steadily increasing monthly amount over 25 years. And then there are the income-based repayment plans, which set monthly payments at a certain share of your discretionary income with the goal of having the remaining balance forgiven after 20 to 25 years.
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