Newspaper article St Louis Post-Dispatch (MO)

Students to Get More Options on Their Loans

Newspaper article St Louis Post-Dispatch (MO)

Students to Get More Options on Their Loans

Article excerpt

Sometime in September, everyone with a federally guaranteed student loan will have many more options for paying it off. That's when the government's new loan-consolidation program will open for business. You can take one or all of the loans you're repaying to private sources and refinance them with the government instead.

Why might you want to switch? If the government offers better repayment terms and options than you can get in the private market. Here's what your standard choices are going to be:

1. An extended repayment plan. This reduces your monthly payments by stretching them over a longer term. How long depends on how much you owe. For debts of less than $10,000, you'll be allowed up to 12 more years to repay (with a minimum payment of $50 a month). Debts of $60,000 or more can be refinanced for as many as 30 more years. You're charged a variable interest rate - currently 7.4 percent and capped at 8.25 percent.

Think twice, however, before extending the term remaining on your loan. That adds to your interest cost, which could make the new loan more expensive even at a lower rate.

2. A graduated repayment plan. You pay over the same length of time allowed under the extended plan. But your payments start low and rise every two years, on a fixed schedule. This arrangement works well if your first job pays peanuts, but your income gradually goes up. If it doesn't, you can escape higher payments by switching to the income-contingent plan (below).

A standard repayment plan, like the one used for private student loans. You make fixed monthly payments of at least $50, to pay off your loan in a maximum of 10 years. If your current loans are at 9 percent, you'll like the lower rate.

4. An income-contingent plan. This generally bases your monthly payments on the size of your debt, your adjusted gross income (including your spouse's) and how many dependents you have. If your income is low - say, $6,000 or less - you might pay nothing, depending on how much you borrowed. Otherwise, you'll owe anywhere from 4 percent to 15 percent of income, usually based on last year's tax return.

If your earnings stay low relative to your debt, this plan can minimize monthly payments for many years - and that includes some middle-income borrowers, as well as people with lower incomes. …

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