Loan Repayment Plans

Graduates will receive their first bill for their loan 6 months after graduation, regardless of whether or not they have found a job.

It’s a subject that few students want to talk about, and few parents want to think about, but the time will come when students will have to repay their loans. There are several different methods of repaying your loans, including new options introduced in the past few years. You should gain an understanding of what options are available to you, and the pros and cons of each. Note that these options are only available for federal loans, and do not apply to private loans.

Repayment Options

The Standard Repayment Plan

• What most borrowers will be put on automatically
• Fixed payments of at least $50 per month
• Loan is paid off in 10 years
• Best option for students who want to eliminate debt quickly and minimize interest payments
• May be too expensive for some recent graduates

The Graduated Repayment Plan

• Allows smaller payments at first, gradually increasing over time
• Still pays off loan in 10 years
• Pros:
  • Lower initial payments when starting your career
  • More manageable for recent graduates
• Cons:
  • Higher total interest payments over the loan’s lifetime

The Extended Repayment Plan

• Fixed or graduated payments extended up to 25 years
• Lower monthly payments
• Cons:
  • Higher total interest payments
  • Must meet certain eligibility requirements

The Income-Based Repayment Plan

• Available to students who demonstrate financial hardship
• Payments are 15% of discretionary income
• Remaining loan balance can be forgiven after 25 years

The Pay As You Earn Repayment Plan

• Payments up to 10% of discretionary income
• Available for up to 20 years
• Remaining balance may be forgiven after 20 years
• Only available for borrowers after Oct 1, 2007
• Requires demonstration of financial hardship

The Income Contingent Repayment Plan

• Payments based on:
  • Adjusted gross income
  • Family size
  • Total loan amount
• Payments may vary annually
• Up to 25 years to pay off balance
• Remaining balance may be forgiven

The Income Sensitive Repayment Plan

• 10-year repayment period
• Payments based on annual income
• Pros:
  • Adjusts to your income level
  • Good for young professionals
• Cons:
  • Higher total interest payments than standard plan

What If I Can’t Make A Payment?

A loan is considered delinquent after the first missed payment. Your loan enters default after 270 days of missed payments. During this time:

• Interest continues to accrue
• Your credit rating is negatively affected
• You may be contacted by debt collectors

If you’re struggling to make payments, contact your federal loan provider immediately to discuss alternative options.

Can I Defer my Payments?

You may be able to temporarily postpone or lower payments for specific reasons:

• Returning to school
• Military service
• Financial hardship

Types of Deferment

1. Regular Deferment

   • Payments cease
   • Government covers interest
   • Must meet specific criteria

2. Forbearance

   • Temporary payment cessation
   • Interest continues to accrue
   • Prevents default status

Should I Refinance?

Refinancing options exist for both federal and private loans. Consider:

• Reducing monthly payments
• Lowering interest rates
• Note: Refinancing may eliminate some repayment options and loan forgiveness opportunities

Should I Consolidate My Loans?

Consolidation combines multiple federal loans into one:

• Single monthly payment
• Potentially lower rates
• Cons:
  • May extend repayment period
  • Could result in higher total interest payments

Is There Any Way to Get Out Of Loans?

Student loans are notoriously difficult to discharge:

• Cannot be discharged through bankruptcy
• Limited exceptions for:
  • Disability
  • Extreme hardship
  • School closure
  • Public service programs (e.g., teacher loan forgiveness)

Bottom Line

Once you sign up for a loan, you’ll likely be making payments for a long time. Even with graduated or income-based repayment options, you could still be paying 25 years after graduation! While paying off student loans may seem far away when starting college, it’s crucial to understand your options before taking out your first loan.

For more information, visit studentaid.ed.gov/repay-loans.