Student Loan Repayment Options
"Student Loan Repayment Options" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012
The methods (also known as repayment schedules) that you may choose to repay your loan.
When does repayment begin?
The first payment is due within 60 days of the loan’s last disbursement; however, you can request a deferment to postpone repaying your PLUS loan (and any Stafford loan). To qualify, the student must be pursuing a degree, enrolled at least half time, or in the six-month post-enrollment period.
What are the credit eligibility requirements?
You cannot have any debts that are delinquent 90 days or more.
You cannot have any defaulted loans, outstanding tax liens, unpaid judgments, or any bankruptcy, foreclosure or wage garnishment within the past five years. If you cannot meet the credit check, you may still receive a PLUS loan if you know someone who can and who is willing to co-sign your loan.
Federal Student Loan Repayment Options
When it comes time to pay back your federal student loans, there are five repayment options, including payments that stay the same each month (standard), payments that rise gradually (graduated), payments that are linked to your income (income-sensitive; income-based) and payments that stretch over a longer period of time (extended). You’ll usually have up to 10 years to repay your loan, but you could have as long as 25 years, depending on your loan amount and repayment plan. Once your federal student loans go into repayment (after you graduate or drop below half-time enrollment), you will have several options for repaying them.
Standard Repayment Plan:
Fixed (substantially equal) monthly payment amounts are paid over 10 years. The standard plan allows you to pay the same amount each month, with up to 10 years to repay. Your monthly payment must be at least $50. Example: 6.8 percent interest for 10 years = $11.51 per $1,000 borrowed. Read More:
Graduated Repayment Plan:
Offers lower payments during the first years of repayment, with the payments gradually increasing over time. Your payments start out low (as little as interest only) and gradually increase over time, with up to 10 years to repay. Example: 6.8 percent interest for 10 years = $5.67 per $1,000 borrowed for first two years, then $13.53 per $1,000 for remaining eight years. More Details:
Income-Based Repayment (IBR) Plan:
Repayment plan for the major types of federal loans made to students. Under IBR, your required monthly payment is capped at an amount that is intended to be affordable based on your income and family size. Payments are 15 percent of your discretionary income (your taxable income minus 150 percent of the poverty level). Payments can be as low as $0 and unpaid interest may be subsidized by the federal government for up to three years. After 25 years of qualifying payments, any remaining balance will be forgiven and considered taxable income. To determine eligibility and your monthly payment. More Details:
Income-Sensitive Repayment Plan:
Allows monthly payments to vary from year to year, depending on your gross monthly income. As agreed upon by you and your lender, your loan payment will be based on a percentage of your gross monthly income – between 4 and 25 percent. The resulting payment must at least cover the interest due each month and the payment term cannot exceed 15 years. Each year, as your income increases or decreases, so do your payments. More Details:
Income-Contingent Repayment Plan:
Payment based on income, household size and state of residence and Forgiveness after 25 years. More Details:
Extended Repayment Plan:
Extends your repayment period up to 25 years, if your first federal loan was dispersed on or after 10/7/98 and your Stafford and PLUS loans total more than $30,000. This plan is for outstanding student loan debt greater than $30,000. Payments can be fixed or may gradually increase over time, with up to 25 years to repay. Example: 6.8 percent interest for 25 years = $6.94 per $1,000 borrowed. More Details:
Deferred payment plan:
Allows you to defer principal and interest payments until graduation. Deferring payment will increase your long-term loan costs. More Details:
Student loan consolidation:
Simplifies repayment by allowing you to combine all of your federal student loans into one, fixed rate loan. And by extending your repayment terms, you can lower your monthly payment as well. More Details:
- Loan consolidation and Federal Consolidation Program
- Help to decide if consolidation is the right option for you
How To Make Your Debt Repayment Easier
After seeing what money you are bringing in, start building a budget. All expected expenditures for the year or month—whichever is easier for you to view—should be listed in another spreadsheet, including rent, food, entertainment, trips, and loan payments.
If your parents took care of your loan applications, you might be unpleasantly surprised when you graduate and the bills start arriving. Don't let that happen. Talk to your parents about exactly how much you're going to owe after college and what—if any—part of those payments your parents will make. Don't Ignore Your Loans While in School.
When you consolidate debt, you combine your multiple debts into one easy to manage loan. By doing this, you make one payment each month to one lender instead of having to keep track of a bunch of different debts from multiple lenders. It makes it much easier to manage and you lower your risk of missing payments and ruining your credit.
It's best to do this when negotiating hiring terms because companies are sometimes willing to pay a portion of your student loans in order to hire or retain talent. When negotiating you could reference that the federal government pays back $10,000 to $60,000 for their employee's student loans. Negotiating a debt consolidation loan allows you to get a lower interest rate. In order to be competitive, lenders usually offer a lower interest rate than you are currently paying on your outstanding debts (especially credit cards). This can save you a great deal of money over the long run.
Another option that is the most common is to restructure your loan payments. Apply for a "Statement Financial Status." Inform the loan administrator of your monthly bills, job status, and living situation and ask to set up a new repayment plan.
Joining the military to put your training to use for the government also has financial benefits for you. The Army, Navy, Air Force, Marines and Coast Guard have some form of a loan payback program when you enlist after college. You can also take advantage of the opportunities within the military and seek higher education that the military helps you to pay for.
The differences between lenders will be in their incentive programs. Some lenders offer incentives such as lower interest rates for automatic payments or rebates for consecutive, on-time payments. Know: How Do I Choose a Lender?
Here Are Some More Ways To Make Your Debt Repayment Easier:
- Pay as you go: Deferring interest payments on your loan may be attractive in the short run, but you’ll pay a lot more in the long run. By paying as little as $20 each month during school, you can save hundreds of dollars over the life of your loans.
- Sign up to have your loan payments taken directly from your bank account: Lenders may lower your interest rate if you make automatic payments and always pay on time.
- See if loan consolidation makes sense: If you have several federal student loans, you may want to ask your lender about consolidating them into a single new loan with a new interest rate and an extended repayment term of up to 30 years. Loan consolidation isn’t right for everyone.
- Let your lender know if you can’t make your payments: If you fall behind, your delinquency will likely be reported to a national credit reporting agency, which could damage your credit rating, making it harder and more expensive if you want to get a loan for a car, home or other major purchase. Ask your lender about changing your repayment plan, or consolidating or combining your loans. You can also look into a deferment or a forbearance to temporarily postpone, reduce or extend your payments.
- Don’t default: If you don’t repay your loan, you’ll face serious consequences:
- You’ll lose the privilege of making monthly payments; the entire amount of your loan will become due.
- You’ll no longer be eligible to receive additional federal financial aid (grants or loans).
- A portion of your paycheck or tax refund can be taken to pay back your loan.
- You can be hit with collection costs.
- You may not be eligible for certain government jobs.
- You’ll damage your credit rating, making it harder and more expensive to borrow money in the future.
- Determine your estimated loan payment obligations on your federal student loans
- Which Repayment Schedule is Right for You Without Breaking the Bank?
- Deferment and Forbearance as Repayment plans
- How Do I Choose a Lender for Repayment?
- Side-by-Side Comparison of Monthly Loan/Grant Repayment Schedule and Duration
- Capitalization/Compounding of educational loan repayment
- Online Financial Planning Guide
- Calculate Gross Income, AGI and MAGI for repayment
- Different Types of Student Loans and Its Repayment After You Graduate, Leave School or Drop Below Half-time Enrollment
- Entrance and Exit Loan Counseling For Undergraduate, Graduate/Professional Students
- Administrative Wage Garnishment (AWG) for outstanding loan
- Credit Rating and Credit Report for evaluation of the likelihood of a borrower to default on a loan
- Avoid Delinquency and Default for not to make payment on time
- Federal Tax Benefits Overview
- Tax Incentives for Education