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Student Loan Repayment Plans

If you’re paying off student loans, you are one of nearly 37 million borrowers with outstanding student debt. If you're consolidating your student loans through the U.S. government, there are several repayment plan options, including some that give you a maximum of 25 years to pay off your student debt, while others are tailored to your income and family size.

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Types of Repayment Plans

Perkins Loans & Private Loans

If you have a Perkins Loan or a private loan, your repayment options will differ, but may be similar. You can find your repayment terms for these loans on the promissory note you signed when you took out the loan.

Review Types of Student Loans

Requirements & Terms

Each plan differs in terms of requirements, time you have to pay off the loans, amount of your monthly payments and total interest you’ll pay. Review the information below to better understand your repayment plan options.

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  • Standard Repayment Plan

    You are automatically assigned this repayment plan if you do not choose among the others. It saves you money over time because your monthly payments may be slightly higher than payments made under other plans, but you’ll pay off your loan in the shortest time.

    Eligible Loans

    • Subsidized and Unsubsidized Direct Loans
    • Subsidized and Unsubsidized Federal Stafford Loans
    • Direct and FFEL PLUS Loans (made to parents and students)
    • Direct and FFEL Consolidation Loans

    Monthly Payment

    Fixed amount of $50 or more.

    Time Frame

    Up to 10 years.

    Comparison

    You pay the least amount of interest over time than other plans.

  • Extended Repayment Plan

    You must have more than $30,000 in Direct Loan debt and not carry an outstanding balance on a Direct Loan as of October 7, 1998 to qualify for this repayment plan. This is a good plan if you will need to make smaller monthly payments.

    Eligible Loans

    • Subsidized and Unsubsidized Direct Loans
    • Subsidized and Unsubsidized Federal Stafford Loans
    • Direct and FFEL PLUS Loans (made to parents and students)
    • Direct and FFEL Consolidation Loans

    Monthly Payment

    You can choose either fixed payments or ones that start low and increase every two years.

    Time Frame

    Up to 25 years.

    Comparison

    Since the repayment period will be 25 years, your monthly payments will be less than those under the Standard Plan. You will pay more interest because your loan is on a longer repayment plan.

  • Graduated Repayment Plan

    Your payments start low, but increase every two years, but no single payment will be more than triple that of a previous payment amount. If you expect that your income will steadily increase over time, this plan may the best for you.

    Eligible Loans

    • Subsidized and Unsubsidized Direct Loans
    • Subsidized and Unsubsidized Federal Stafford Loans
    • Direct and FFEL PLUS Loans (made to parents and students)
    • Direct and FFEL Consolidation Loans

    Monthly Payment

    Start low, increase every two years.

    Time Frame

    Up to 10 years.

    Comparison

    You pay more interest than Standard Plan, but payments become easier as your income increases over time.

  • Income-Based Repayment Plan

    This repayment plan requires you show a partial financial hardship and is based on income, family size and state of residency.

    Eligible Loans

    • Subsidized and Unsubsidized Direct Loans
    • Direct and FFEL PLUS Loans (made to students)
    • Subsidized and Unsubsidized Federal Stafford Loans
    • Direct and FFEL Consolidation Loans (made to students)

    Monthly Payment

    These are 15 percent of your discretionary income, which is based on a formula that includes your adjusted gross income, family size and state of residence.

    Time Frame

    Up to 25 years.

    Comparison

    While you pay more for your loan over time, payments are lower than Standard Plan. You may qualify for forgiveness of outstanding balance after only 10 years, but could pay income tax on amount forgiven.

  • Income-Contingent Repayment Plan

    If you do not have a financial hardship, but have low income, this plan could offer you some flexibility.

    Eligible Loans

    • Subsidized and Unsubsidized Direct Loans
    • Direct PLUS Loans (made to students)
    • Direct Consolidation Loans

    Monthly Payment

    These are based on a formula that includes your adjusted gross income, family size and state of residence. They are 20 percent of your discretionary income.

    Time Frame

    Up to 25 years.

    Comparison

    While you pay more for your loan over time, your outstanding balance can be forgiven after 10 years, based on certain qualifications. You could pay income tax on amount forgiven.

  • Pay-As-You-Earn Plan

    This plan is synonymous with the 'Obama Student Loan Plan.' If you are facing a partial financial hardship, this plan offers you the lowest monthly payment amount of the repayment plans based on your income, family size and state of residency.

    Eligible Loans

    • Subsidized and Unsubsidized Direct Loans
    • Direct PLUS Loans (made to students)
    • Direct Consolidation Loans (made to students)

    Monthly Payment

    These are 10 percent of your discretionary income, which is based on a formula that includes your adjusted gross income, family size and state of residence. They are adjusted annually.

    Time Frame

    Up to 20 years.

    Comparison

    Lower payments than Standard plan. Continue making payments under this plan even if you no longer have a partial financial hardship. Outstanding balance can be forgiven after 10 or 20 years, based on certain qualifications. You could pay income tax on amount forgiven.

Starting Your Repayment Plan

Upon the start of your loan payback, you’ll be automatically enrolled in the Standard Repayment Plan, unless you choose to sign up for a different one.

Grace Periods

There is a grace period for most federal loans, but know that typically interest will accrue during this time. If you have subsidized or unsubsidized Direct Loans and Stafford Loans, you have a six-month deferment grace period before you start making payments. If you received a Perkins Loan, check with your school.

Deferments

PLUS Loans have no grace period and you must start paying once the funds are fully disbursed; however, you may be eligible for a deferment. You might be able to postpone your deferments if you’re on active military duty or returning to school before the end of the loan’s grace period.

Making the First Payment

Remember that you are responsible for contacting your lender to find out when your first payment is due. For some loans, the lender will contact you or send you a bill to let you know the grace period has ended. However, part of signing the promissory note means you are responsible for starting these payments.

Changing Repayment Plans

You can change repayment plans once every year. The only criteria is that the maximum loan term of the new repayment plan must be longer than the amount of time you have already been in repayment.

Some people encounter income changes or increased living expenses that alter their ability to pay off loans and choose to go with a different plan.

Changing Repayment Plans

Consolidated Loans & Repayment Plans

Consolidated loans are eligible for repayment plans as long as the loans are consolidated into a Direct Loan or Federal Family Education Loan. Many students choose to consolidate loans to avoid the confusion of multiple payments at different times of the month. Once loans are consolidated, you are responsible for a single payment only.

The exception to this rule is that you cannot use the Income-Contingent or Pay As Your Earn repayment plans if you have a FFEL or FFEL Consolidation Loan.

When Can I Consolidate?

As soon as you graduate, leave school or drop below half-time enrollment, you can consolidate your loans. If you consolidate your loans during your grace period, you will relinquish the remainder of your grace period and start repayment after your consolidation loan is paid out.

Unless you receive a deferment or forbearance on your loan, you can expect your first bill about two months after the consolidation loan is disbursed.

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Author

Cecillia Barr

Cecillia Barr

Cecillia Barr is a graduate of the University of Central Florida. She blogs about her extensive knowledge on student loans in order to help others reduce their debt and live financially independent lives.

Sources

  1. U.S. Department of Education. Federal Student Aid. (2013, April 14). Retrieved from http://studentaid.ed.gov/repay-loans/understand/plans
  2. U.S. Department of Education. Calculator Results. (2013, February 22). Retrieved from http://www.direct.ed.gov/RepayCalc/dlentry1.html
  3. FinAid. Repayment plans. (2013, April 15). Retrieved from http://www.finaid.org/loans/repayment.phtml
  4. American Student Assistance. Student Loan Statistics. (2013, April 17). Retrieved from http://www.asa.org/policy/resources/stats/
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