Repayment Incentives

"Repayment Incentives" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012

If you demonstrate good repayment behavior—for example, 48 consecutive monthly payments made on time - your lender may offer incentives. Check with your lender to find out about options such as a reduction in your interest rate if your monthly payments are deducted directly from your personal checking account. Such incentives can save you hundreds - even thousands - of dollars.

A repayment incentive can be an up-front interest rebate to borrowers. For example, Direct Stafford Loans offer borrowers a rebate amount equal to 1.5 percent of the loan amount borrowed. This is the same amount that would result if the interest rate was lowered on a loan by approximately 0.24 percent, but the borrower receives the rebate up front.

The Direct Loan Program currently offers two repayment incentive programs. One is the interest rate reduction for having payments automatically debited from the borrower's bank account (discussed in the preceding section). The other is the up-front interest rebate that is equal to a "certain percentage" of the loan amount borrowed, and is the same amount that would result if the interest rate was lowered by a "specified percentage." The result of the rebate is an increase in the net loan amount that the borrower receives up-front when the loan is disbursed.

A lender in the FFEL Program might offer incentives for making payments on time, such as a reduction in the interest rate. Contact your lender to find out if any incentives are offered.

The most common plans are:

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