Students may find it challenging to accurately understand their payment options and plan during repayment period especially if it’s a large amount such as $120,000. However, your student loan payment process can quickly change from daunting to easy or simple with the right information, detailing all you need to know to make a well informed decision on the best method to repay your loan.
Factors that affect your student loan repayment
Before considering the actual repayment plan, you need to know the factors that can have a significant impact on your loan repayment option (s).
Interest rates
The interest rate on your student loan can greatly affect your monthly payment amount. For students who take federal loans, this type of loan usually has fixed interest rates. That means, you will be required to consistently pay an exact amount as interest every month. However, if you took a private loan instead, the interest rate is of two types and that is, fixed and variable interest rate. Fixed is stable but with variable interest rate, the interest on your loan will continually fluctuate based on changes in the market condition.
Loan term
The length of your loan term, that is, how many years you have to repay your loan significantly affects your monthly payment amount. Generally, there are two types, shorter and longer loan terms. For students who choose shorter loan terms, their monthly payment amount will be much higher than those who decide on a longer loan term. However, the short term attracts a low interest rate whilst the long term will result in a higher interest rate. Common loan terms can be 10,15 or 20.
Repayment plans
There are different repayment plans for your student loan based on your financial condition:
- Standard repayment plan: With this plan, your student loan is spread out evenly over a term usually, 10 years. This plan is preferable for students who have a stable source of income every month.
- Graduated repayment plan: In this type of payment plan, you start with a low payment and later, every two years, your payment increases. Students who anticipate a rise in income can opt for this kind of payment option.
- Income-driven repayment plans (IDRs): This type of plan, as the name implies, is based on your income and family size. Popular types of IDRs include – Income-Based Repayment (IBR) and Pay As You Earn (PAYE). Payments with any of these plans can vary, but they often start lower and adjust as your income changes.
Loan forgiveness programs
There are programs students can leverage on to reduce or eliminate their loan balance on meeting certain requirements. For example, the Public Service Loan Forgiveness (PSLF) program forgives your remaining debt, in this case, your student loan, after 120 qualifying monthly payments under an IDR plan. Additionally, you are also expected to work within a qualifying public service office.
See how to repay your $70,000 student loan.
Monthly Payment Estimates for a $120,000 Student Loan
To determine the monthly payment on your student loan, let’s explore different scenarios based on the different kinds of interest rates and repayment plans available:
1. Standard repayment plan
The standard repayment plan involves fixed monthly payments over a 10-year period. Here are the estimated monthly payments for different interest rates:
- Interest rate: 3.73%
Monthly payment: $1,204.64
- Interest rate: 5%
Monthly payment: $1,272.50
- Interest rate: 6.28%
Monthly payment: $1,359.74
These calculations are based on a fixed interest rate and a 10-year term, providing a straightforward and predictable repayment schedule.
2. Graduated repayment plan
With the graduated repayment plan, initial payments will be lower but will increase every two years. For example, if your starting payment is $600 and it increases by 25% every two years, here’s a rough estimate of what you will be required to pay:
- Starting payment: $600
Payments increase every two years, which can range from $600 to $1,200 over the life of the loan. Your total monthly payment averages to around $1,000 across the term. This might vary based on the exact percentage of increment for your loan.
3. Income-driven repayment plans (IDRs)
This can be adjusted based on income and family size. Here’s an example based on an annual income of $50,000:
- Monthly payment range: $700 to $900
The specific payment will depend on the chosen IDR plan and any changes in your income or that of your family over time.
4. Extended loan repayment
With this plan, your loan term can be as long as 25 years which reduces your monthly payments but increases your total interest paid:
- Interest Rate: 5%
Monthly Payment: $705.10
- Interest Rate: 6.28%
Monthly Payment: $828.19
This plan is beneficial for those needing lower payments, but they result in higher overall interest costs.
Check how much you have to pay according to the amount of the student loan:
- What is the monthly payment on a $10,000?
- What is the monthly payment on a $20,000?
- What is the monthly payment on a $30,000?
- What is the monthly payment on a $40,000?
- What is the monthly payment on a $50,000?
- What is the monthly payment on a $60,000?
- What is the monthly payment on a $70,000?
- What is the monthly payment on a $80,000?
- What is the monthly payment on a $90,000?
- What is the monthly payment on a $100,000?
- What is the monthly payment on a $110,000?
- What is the monthly payment on a $120,000?
- What is the monthly payment on a $130,000?
- What is the monthly payment on a $140,000?
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- What is the monthly payment on a $160,000?
- What is the monthly payment on a $170,000?
- What is the monthly payment on a $180,000?
- What is the monthly payment on a $190,000?
- What is the monthly payment on a $200,000?
