While growing up, there’s a constant reminder that getting an education is necessary to succeed in life.
However, as we go through the different phases of schooling, we also learned that earning a degree is expensive.
Most college students face the challenge of funding their education, thus resorting to student loans.
It’s crucial to know the average student loan debt monthly payment after graduation so that you can budget accordingly.
What Is Student Loan?
A student loan is an amount of money you borrow from a private lender or the government for your college education.
Students use this money to pay for their tuition fees, books, room and board, and other education-related expenses.
They then start paying for the loan, plus its incurred interest, after graduation or after leaving the school.
For clarity, student loans are different from grants and scholarships from the government or the school.
It also differs from work-study programs offered by some colleges and universities, where students receive a minimal fee for working in the school.
Student Loan Types
Generally, student loans come in two major types: federal and private.
Whichever option you choose, though, expect there to be an additional interest to the principal amount.
To better understand each type, let’s look at each one and how it works.
1. Federal Student Loan
As the name implies, federal student loans are financial aids provided by the government under the US Department of Education.
The benefits and terms of a federal student loan depend on which type you choose from the three options provided.
Direct Subsidized Loan
The direct subsidized loan is for undergraduate students who need financial aid as determined by their completed Free Application for Federal Student Aid form.
The government, specifically the Department of Education, processes the application without credit checks.
However, amount limitations are reliant on a student’s year level or whether he is a dependent or on his own.
In this loan type, the government covers the fixed interest rate of 2.75% until the students leave the school.
These students have six months of extra time before the government requires them to start the repayment process.
The direct subsidized loan is also eligible for other repayment plans and loan forgiveness programs if the borrower has financial difficulties.
Direct Unsubsidized Loan
With a direct unsubsidized loan, the interest is shouldered by the student, whether graduate or undergraduate, once the school receives the money.
Borrowers don’t have to fill up the same form used for the subsidized loan.
They also have similar interest rates, fees, terms, and benefits.
In contrast, professional and graduate student borrowers need to pay an interest rate of 4.3% for their loans.
Similarly, the students don’t need to pay the loan while still in school. However, the interest continues to accumulate.
There is no credit check required, although there is a loan amount limitation depending on your student status and whether you are dependent or not.
For dependent undergraduate students, they can borrow up to $31,000, while independent ones can appropriate as much as $57,500.
Direct PLUS Loan
Parents can make a loan for their dependent students under direct plus.
In the same way, graduate and professional students can also borrow money under this type.
They need to undergo a credit check after filling up an application form.
Those with adverse credit history can ask the help of a co-signer.
The terms for this loan are not that amicable, with its fixed interest rate of 5.3% plus the origination fee.
Graduates and professional borrowers have the option to not pay for the loan while still in school.
They also have a six-month leniency period after they have left the school.
However, they must be ready to accept and pay the accumulated interest during those times.
Fortunately, they are qualified for loan forgiveness programs or may ask for income-driven repayment plans.
On the other hand, parents have to make payments right after the loan is paid out or apply for a postponement of payments.
They don’t have the same terms and benefits as graduates and professional borrowers, but they may apply for an extended repayment plan.
This plan will give them an extended paying time on a lower amount.
Parents are also eligible for the income-contingent repayment plan, which turns their direct plus into a direct consolidation loan type.
Direct Consolidation Loan
This federal loan type allows the borrowers to incorporate all acceptable federal student loans into one without an application fee.
This process is typically done after the student has left the school.
The interest rate is changed into a weighted average from the consolidated student loans.
Consolidated loans can also qualify for loan forgiveness programs and income-driven repayment plans.
You can enjoy the benefits of loan consolidation, but try to weigh all your options before making any decisions to know if this choice is suitable for you.
2. Private Student Loans
Generally, students must only consider this option if they have maxed out their federal student loans.
Private student loans charge higher interest rates, making them more expensive than the ones offered by the government.
Most of the time, there is no postponement of payments, requiring students to pay for their loans while still in school.
Students shoulder all loan interests and must agree to the lender’s terms and conditions without question.
Private student loans are just additional options from the ones offered by the government that also come in different types.
Your credit history may influence the type of loan you qualify for and its interest rate, as they don’t follow standard options.
Various private lending organizations are offering different loan types based on the borrower’s course.
Also, the degree you are taking can influence your loan amount, repayment terms, and interest rate.
Community College/Technical Training
Some private lending companies offer loans to students taking up two-year courses, attending career-training programs, or non-traditional schools.
Undergraduate School Loans
Undergraduate school loans are for students taking up a bachelor’s degree.
Most private lenders offer higher loan limits with lower interest rates for this loan type.
Graduate/Professional School Loans
Private lenders offer an even higher loan amount than the other two previous loan types, indicating that graduate school is more expensive.
Some private lending organizations even offer special loan programs for law, business, or medical school.
Parent Loans
Like federal student loans, private lenders also allow parents to borrow money to support their child’s education.
Parents handle the legal responsibility of repaying the lender.
Still, it’s up to the family’s agreement if the child will pay the parents or not.
Average Student Loan Debt Monthly Payment
Now that you have an idea of the various loan types for your higher education needs, it’s wise to know the average student loan debt monthly payment you have to prepare.
Generally, students pay an average of $393 monthly after leaving school.
However, the amount can change depending on various factors.
For starters, let’s understand some terms commonly used by lenders and borrowers.
Principal
The principal or capital is the base amount you borrowed from the government or a private lending body.
Interest Rate
The interest rate is the percentage amount you will have to pay on top of the principal, which may vary depending on your loan type.
Most of the time, federal loans have fixed interest rates, unlike private loan percentages that vary.
Loan Repayment Term
The loan repayment term is when you have to return the borrowed principal plus interest to the lender.
Most federal student loans are payable within 10 to 30 years.
In contrast, private loan repayment terms depend on your agreement with the lender.
Once you have all this information, choose an online student loan calculator and then put in your loan details to see your average monthly payment.
Most students with federal loans opt to apply for an income-driven repayment plan.
It means that their monthly loan payment will depend on how they earn.
Federal Student Loan Repayment Options
For some graduates, repaying their student loans is not an issue if they work in an in-demand field with a high salary.
What if you land a job that does not pay much? How can you repay your student loan on time?
Good thing there are student loan repayment options you can enroll in or apply for.
Standard Repayment Plans
All types of borrowers are qualified to enroll in the standard repayment plan.
There will be a fixed payment term payable within 10 years.
It is the perfect option for those who want to save on interest charges by paying their loans in a shorter time.
However, this option is not suitable for people who want to apply for the Public Service Loan Forgiveness Program.
Graduated Repayment Plans
A graduated repayment plan for a federal loan still aims to pay it off within 10 years but usually starts at a lower amount.
The payment gradually increases every two years or so as the borrower’s capacity to pay improves overtime.
All borrower types are eligible to apply, especially those who want to finish paying off their loans faster as their income increase.
Again, this option is not applicable for those who plan to avail of the Public Service Loan Forgiveness Program.
Extended Repayment Plans
Borrowers with more than $30,000 in unpaid student loans can apply for an extended repayment plan.
The government adjusts the loan repayment term from 10 to 25 years with fixed or graduated payments.
The adjustment will allow you to pay a smaller amount for an extended period.
It’s not suitable for those who are not willing to pay an increased interest rate.
(PAYE) Pay-As-You-Earn Repayment Plan
This plan is applicable for those who received their direct loans from October 1, 2011, onwards.
PAYE will take 10% of your income after deducting taxes and personal expenses.
However, the amount should not exceed your supposed payment for a standard plan.
It’s also an ideal option for those seeking a lower monthly payment and curious about the Public Service Loan Forgiveness Program.
People with fluctuating annual income must not try this option.
(REPAYE) Revised Pay-As-You-Earn Repayment Plan
Borrowers with eligible direct loans can apply for this plan.
Here, 10% of their discretionary income is set aside as their monthly loan payment.
It’s a suitable option for those willing to pay more interest than with a standard plan and interested in the loan forgiveness program.
This option is not suitable for married couples with joint returns and high combined income.
(IBR) Income-Based Repayment Plans
An income-based repayment plan is suitable for all borrowers except for parents with Plus loans.
Around 10% to 15% of your discretionary income from when you made the loan determines your monthly payments.
The amount must not be higher than your monthly rate for a 10-year standard plan.
You are only eligible for the loan forgiveness program after paying for 20 to 25 years.
It’s an ideal option for those with high outstanding balance and wants a lower monthly payment scheme.
People who can afford to pay their existing loan faster and higher than 10% to 15% of their income can ignore this plan.
(ICR) Income-Contingent Repayment Plans
An income-contingent repayment plan is for direct loan borrowers, except for Parent Plus loans.
The monthly payment amount is based on whichever is lower than the 20% of your discrepancy income or the fixed payment for a 12-year repayment plan.
It’s an ideal option for people who can spare 20% of their discretionary income to pay for their loan and are also interested in the loan forgiveness program.
This repayment plan is not suitable for those who have other debts besides direct loans.
Also, it’s not for married couples in a high tax bracket with a joint file.
Income-Sensitive Repayment Plans
This plan is applicable for those who availed of the Federal Family Educational Loan and want a lower monthly loan payment.
Monthly payments depend on the borrowers’ annual income.
As a rule, loans must be fully paid in 15 years.
However, it’s not an ideal option for those interested in the government’s loan forgiveness program.
Private Student Loan Repayment Options
All the above repayment plans are for federal student loans and do not apply to private student loans.
Private lenders also have several repayment options specific to their borrowers.
Immediate Repayment Plan
This repayment plan means that you will start the monthly amortization, for the principal and interest, right after the loan is released to your school.
You don’t have to wait until you graduate before you pay the loan, which means that you will have paid off most of your debt as you graduate.
Interest-Only Repayment Plan
As the name suggests, borrowers pay the loan’s monthly interest while still in school to prevent it from adding to the principal.
Because of this, you will have lower monthly payments once you graduate or decides to stop school and needs to start paying off the loan.
Fixed-Rate Payment Plan
With this plan, you can choose to pay a fixed amount at a lower rate while in school.
You can then start paying a higher amount regularly once you graduate and out of school.
Full Deferment Plan
With this plan, you don’t have to make any payments while you are still in school.
Instead, you start paying off the loan after you graduate.
When it comes to private student loans, the lender decides on the loan terms.
Therefore, you must do extensive research before applying for one.
Student Loan Refinancing Overview
You can also try student loan refinancing, an option applicable for both federal and private debts.
You might be asking what this student loan refinancing scheme is?
Technically, it is one way of lowering the interest rate on your existing student loan.
In short, you will go to a private lender and ask them to pay off your current loan for a new one from their company under new terms.
There’s no extra cost to loan refinancing.
It will also decrease the interest rate, allowing you to save more over time.
There are numerous private lenders offering loan refinancing with different interest rates.
If you have a good credit history, you are more likely to get a lower percentage.
However, make sure that you have done your research before applying for a loan refinancing.
Keep in mind that this option is not suitable for all borrowers.
Most refinance companies require borrowers to have a stable income and a good credit standing.
If so, you might even need a co-signer to qualify.
Also, you will want to check the status of your existing loan.
If refinancing adds more years to your repayment time, then you better think again.
If your unpaid student loan falls under the federal category, you will lose some benefits only offered to government-funded debts.
For the most part, if you think loan refinancing is more beneficial to your current situation, then go and submit your application.
Final Thoughts
Some people believe that college education should be free.
Whatever reasons they provide, we all know that getting a degree requires money.
If you decide to take on a student loan for your higher education needs, ensure that you are fully aware of your payment options.
Without a doubt, money matters when it comes to education, but you shouldn’t let it deter you from getting a degree.
