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A Simple Guide to Student Loan Repayment Strategies

Master your student loan debt with smart strategies! Explore Income-Driven Repayments, Forgiveness, and Employer Assistance.

by Team Paidly
Jun 29, 2023 4 min read
A simple guide to student loan repayment strategies: a tale of two borrowers

Key Takeaways

  • Compare standard and income-driven repayment plans to find the best option for your situation.
  • Understand the challenges of income-driven repayment plans and the potential for student loan forgiveness.
  • Learn how employer student loan repayment assistance can help you pay off your debt faster.

Understanding your student loan repayment options is essential for managing your debt effectively. In this easy-to-read guide, we'll explore Income-Driven Repayments, Student Loan Forgiveness, and Employer Student Loan Repayment programs to help you make the best decisions for your situation.

Comparing Repayment Plans - Emily and Daniel's Choices

Emily's Standard Repayment Plan

Emily and Daniel both have $30,000 in student loan debt with a 5% interest rate. Emily picked a standard repayment plan, which let her pay off her debt in 10 years. She paid $318 each month, with early payments mostly covering interest. Over time, more of her payment went towards the loan balance, and after 10 years, she was debt-free.

Daniel's Income-Based Repayment Plan

Daniel chose an Income-Driven Repayment plan, which lowered his monthly payment to $68 based on his $30,000 yearly income. But with amortization, he still owed that $125 the first month since it's the same loan as Emily, but Daniel's monthly payment was less than that, meaning there's nothing to go towards the loan's principal, and his balance owed goes up. Sadly, this payment only covered interest, which made his total amount paid go up, and also his balance. After 10 years, he paid $8,000 but still owed over $38,000.

Sample Amortization Table: Emily and Daniel's First Three Months of Payments

Emily's

MonthPaymentInterestPrincipalBalance
1$318$125$193$29,807
2$318$124.2$193.8$29,613
3$318$123.39$194.61$29,418

Daniel’s (Income-Driven Repayments)

MonthPaymentInterestPrincipalBalance
1$68$125$-57$30,057
2$68$125$-57$30,114
3$68$125$-57$30,171

Income-Driven Repayments and Student Loan Forgiveness Challenges

The Difficulty of Income-Driven Plans

Income-Driven Repayment plans usually last 20 or 25 years, with any leftover balance being forgiven. So in theory, people like Daniel will have paid $16,000 after two decades, and his then $53,000 balance would be forgiven, but a government report found that of all the borrowers at that stage, only 11% would be eligible for forgiveness. Completing these programs is tough, as missed payments or not submitting yearly income updates can disqualify borrowers.

The Promise of Student Loan Forgiveness

President Biden's Student Loan Forgiveness plan aims to simplify Income-Driven Repayment plans, making it easier for borrowers like Daniel to achieve loan forgiveness.

Employer Student Loan Repayment - Daniel's Extra Help

Employer Assistance Increases Monthly Payments

If Daniel's employer offers Student Loan Repayment Assistance, contributing an extra $100 per month, his monthly payment would rise to $168. This would let him pay off his loan in about 23 years, assuming Daniel remains enrolled in an income-driven repayment plan, his new monthly payment would be more than enough to cover the interest and start reducing the principal balance.

Understanding Employer Assistance Programs

Not all borrowers have access to Employer Student Loan Repayment programs, and they often come with specific requirements. Borrowers should carefully review their employer's program and consider how it affects their repayment strategy.

Sample Amortization Table

Daniel's First Three Months of Payments with Employer Assistance

MonthPaymentInterestPrincipalBalance
1$168$125$43$29,957
2$168$125$43$29,914
3$168$125$43$29,871

Unlocking the Secrets to Successful Student Loan Repayment

Knowing the differences between repayment plans, the role of amortization schedules, and the benefits of Employer Student Loan Repayment programs can help borrowers make informed decisions. President Biden's Student Loan Forgiveness plan offers hope for those struggling with Income-Driven Repayment plans.

Team Paidly

Team Paidly

Paidly is a Student Loan Repayment Benefit platform. Leveraging over a decade and a half of Fintech, student loan origination, and refinancing experience. Paidly specializes in creating custom student loan repayment benefit plans, designed specifically to allow employers to pay directly towards their employees' student loans. Paidly's system requires no integration and enhances talent attraction and employee retention.

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The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Paidly shall have no liability for the information provided. While care has been taken to produce this document, Paidly does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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