Repaying student loans is a crucial process that necessitates careful planning. The loan repayment process varies across countries, offering borrowers multiple options. Just as students have various options for obtaining loans, they also have various methods for repaying them.
Repayment methods adopted by students
These methods include standard repayment, extended repayment, and more. In standard repayment, students have to pay a fixed monthly amount for a loan term of up to 10 years. Depending on the amount of the loan, the loan term may be shorter than 10 years and can vary based on the size of the amount borrowed. Conversely, extended repayment is an advanced version of standard repayment where the tenure is more than 10 years.
It is important for students to bear in mind that the repayment terms for loans can differ depending on the country in which they are obtained.
“In the UK, student loans are categorised as Plan 1 and Plan 2, with repayment criteria based on the loan origin and the course’s start date,” said Amit Singh, Founder of UniCreds (an extended arm of UniScholars).
Loan repayments are automatically deducted from the borrower’s income through the tax system, and there are provisions for adjusting the repayment amount and potential loan write-offs based on factors such as loan type, country, and course start date, Singh added.
Repayment options popular among students.
There are several types to consider based on your goals. The two main categories are conventional repayment plans and income-driven repayment plans.
Standard repayment plan
The standard repayment plan typically spans ten years, the duration of which varies depending on the country you reside in. Amit Singh said that this plan is generally recommended if you want to minimise the amount of interest you pay over time.
Graduated repayment plan
On the other hand, the graduated repayment plan starts with lower monthly payments that gradually increase over time. This plan assumes that your income will increase as you progress in your career, he added.
Income-driven repayment plan
Alternatively, income-driven repayment programs offer a different approach. They require individuals to make monthly payments based on a percentage of their discretionary income, typically between 10% and 20%. If one is unemployed, payments can be as low as $0, varying annually.
Depending on the type of debt, income-driven programs can extend the loan duration to 20 or 25 years. Ultimately, check the methods and conditions of repayment for your preferred location where you plan to go.
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Updated: 21 Jun 2023, 12:55 PM IST