Repaying student loans-Part 3

Do it in a decade

Aim to have the loan repaid in 10 years. There are a variety of different payback plans for federal loans, with the payment period ranging from 10 to 25 years. As tempting as it can be to opt for the longer repayment schedule---spreading out payments over many more months lowers your monthly payment---you will also get stuck paying a lot more interest over the longer term.

Choosing a repayment option that is tied to your current income is also very tempting. Qualifying borrowers have their monthly payments set at a very low percentage of their income. But there are two big catches: The longer you take to repay, the more you end up paying in interest charges than if you had stuck with a 10-year payback.

And even if you qualify to have the remaining balance forgiven (depending on the plan, that can be after 20 or 25 years of on-time payments), be aware that any forgiven amounts must be reported as taxable income. My advice: Stick with the standard 10-year payback option, unless you are heading for a career in public service.

Loan forgiveness

If you opt for a full-time career working for a government entitiy (teaching, law enforcement, etc.) or approved nonprofit, you may be able to reduce your total loan obligation. Under the Public Service Loan Forgiveness Program, any remaining balance after you've made on-time monthly payments for 10 years will be forgiven, with no income tax owed to the balance whatsoever. If you plan to spend at least 10 years in a career that qualifies for this loan forgiveness program, it makes sense to opt for the income-based repayment plans.

My last bit of advice: Get schooled on student loan repayment ASAP. A good source of information is at studentaid.ed.gov; click on "How to Repay Your Loans" at the top of the page to be linked to a trove of important information on how to ace your student loans.