It’s unlikely that universal student loan forgiveness will ever be possible, so it’s important to plan for the future.
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Progressive legislators are urging President Biden not to extend his campaign promise to eliminate at least $10,000 student debt per borrower. However, 43 million students still have student loans. Jen Psaki, White House Press Secretary, stated in a December 10 press conference that the student debt freeze which was set to expire in January 2022 would not be extended. This means that those who have outstanding student loans can expect to receive their payments in February.
You could end up in debt, depending on how long you plan to repay your loans. Intelligent’s survey found that 1 in 10 student loan borrowers remain in debt 20 years later than they were when they graduated. It can be hard to save money for your future or make plans for the future if you have to pay monthly repayments for your student loans.
When will your student loans be paid off?
The type of student loan you have and the repayment plan you choose will affect how long you pay off your loans. Contact your loan servicer if you don’t know what plan or how long your loan term is.
- Federal loans
Federal loan borrowers typically take 16 to 19 years to repay their loans, according to an analysis of government data performed by Savingforcollege.com. Borrowers who are able to repay their loans in 10 years or less can be surprised by these numbers. These default Standard Repayment Plans often require 10% of the borrower’s discretionary income. This is too much for most people to afford comfortably.
Michele Streeter (associate director of policy advocacy and policy at The Institute for College Access & Success) says that very few borrowers repay their debts within the first ten years.
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Many borrowers choose income-driven repayment plans to reduce their monthly payments. These plans base their payments on a lower portion of their discretionary income. These plans reduce the monthly payment but increase the loan term. Repayment terms vary depending on which plan you choose. They can range from 20 to 25 years.
- Private student loans
Because there are fewer repayment options, private loans offer less flexibility in terms of repayments.
Streeter says that private loans tend to have a shorter repayment period than the terms offered by lenders. The loan term you choose is what you signed up for.
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When do you start paying your loan?
The type of loan you have will determine when you must make your payments. Federal loans usually have a grace period of six months after you leave school, graduate or drop below half-time enrollment. While you are not required to pay interest during this grace period, most cases will still see interest accrue. To avoid having interest added to your principal balance, you can pay the interest accrued during your grace period.
The grace period for Grad PLUS and Parent PLUS loans is not available, but borrowers have the option to defer payments up to six months after graduation.
You can find specific repayment guidelines for Federal Perkins Loans at the school where you received it.
All federal student loan payments were stopped by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This means that your grace period might be longer than you expected. The federal student loan freeze will end on January 31, 2022.
The grace period for private loans will depend on the lender you chose and the options you selected at the time you took out the loan. Private loans don’t have grace periods so payments may be required while you are in school or right after graduation.