Breaking Down The Repayment Options
By iGrad Published August 19, 2011 | 6715 Views
- Posted In:
- Resources
The Grace Period
Eventually, there will come the dreaded time when you have to begin repaying your student loans. If you graduate, leave school, or drop below half-time enrollment, you guessed it – you’ll have to start paying back your loans. The good news is you probably will have a grace period, a little reprieve before you must begin repaying your federal student loans. Federal student loans allow for the following grace periods after your Last Date of Attendance:
- 6 months (for Federal Stafford Loans)
- 9 months (for Federal Perkins Loans)
If you’re an undergraduate and your parents have a Direct PLUS Loan, interest will begin to accrue at the time the loan is fully disbursed, with the first payment due within 60 days after the final disbursement.
| Learn How To Access Your Student Loans Here! |
If you’re a graduate student and have a Direct PLUS Loan, you may be able to defer repayment while enrolled at least half-time, and (for PLUS loans first disbursed on or after July 1, 2008) for an additional six months after you are no longer enrolled at least half-time.
The Payment Plans
Once it’s time to start paying back your loans, you’ll have a few different options for just how you’ll repay. One size does not have to fit all when it comes to repaying your loans. You can select from an array of different payment options to choose the one that’s right for you:
1.) Payment in Full |
The Breakdown: |
• You may pay your loan in full, at any time, without penalty |
2.) Standard Repayment |
The Breakdown: |
• Pay a fixed amount each month until loans are paid in full |
Who’s It For? |
| If you’re looking to pay off your loans quickly, this may be the plan for you. You’ll save money over the long-term by paying less interest, but your monthly payments will likely be higher. Remember, you’ll have no more than ten years to repay. |
3.) Extended Repayment |
The Breakdown: |
• Pay a fixed or graduated monthly amount until loans are paid in full |
Who’s It For? |
| If you’re looking to control your monthly student loan payments, this may be the plan for you. You’ll ultimately pay more over the long-term, because you’ll be paying more interest over the 25-year plan, but your monthly payments will likely be smaller. |
4.) Graduated Repayment |
The Breakdown: |
• Payments start out low and increase every two years |
Who’s It For? |
| If you expect your income to steadily increase over time, this may be the plan for you. You'll be able to control your monthly payments when your income is less than desirable, although your monthly payment will never be less than the amount of interest that accrues between payments. Even though your monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment. |
5.) Pay As You Earn Repayment (PAYE) |
The Breakdown: |
• Available only for Direct loans |
Who’s It For? |
| If you'd like to make monthly payments based on your income, this may be the plan for you. Additionally, if you plan on working in public service, a PAYE plan may offer the possibility of loan forgiveness. Download this PAYE Fact Sheet for more info! |
6.) Income Based Repayment (IBR) |
The Breakdown: |
• Became effective July 1, 2009 |
Who’s It For? |
| If you’d like to make monthly payments based on your income and don't qualify for the Pay As You Earn (PAYE) plan, this may be the plan for you. Additionally, if you plan on working in public service, an IBR plan may offer the possibility of loan forgiveness. Download this IBR Fact Sheet for more info! |
7.) Income Contingent Repayment (ICR) |
The Breakdown: |
• Available only for Direct Loans |
Who’s It For? |
| If you’d like to base the size of your monthly Direct Loan payments on the size of your income and family, this may be the plan for you. The ICR plan also offers the possibility of having your loans forgiven after 25 years if you meet specific conditions. |
8.) Income Sensitive Repayment |
The Breakdown: |
• Available only for FFEL loans |
Who’s It For? |
| If you’d like to base the size of your monthly FFEL Loan payments on the size of your income, this may be the plan for you. Keep in mind that this plan is tailored to individuals who’d like to pay off their FFEL loans within 10 years. |
Compare Repayment Plans Side-by-Side
Use these student loan payment calculators to calculate potential repayments:
| Standard, Extended & Graduated Repayment Comparison Calculator | Pay As You Earn Repayment (PAYE) Calculator |
 | |
| Income Based Repayment (IBR) Calculator | Income Contingent Repayment (ICR) Calculator |
| |
Having Trouble Repaying? There's Help!
If you’re having trouble repaying your loans, there can be help available! Contact your loan servicer as soon as possible to determine the best way for you to move forward.
(CLICK HERE for a complete list of LOAN SERVICERS for federally held loans made through the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Family Education Loan (FFEL) Program.)
Among the helpful resources available to you are:
- Loan consolidation: you can combine your student loans into a single loan, sometimes with a lower interest rate.
Changing repayment plans: you can switch from one plan to another once per year, as long as the maximum term of your new plan is longer than the time period in which you have already been repaying your loans.Download Federal Forms For Consolidation, Forbearance, & Deferment - Deferment: under certain conditions, deferment allows you to temporarily stop making payments on your student loans.
- Forbearance: if you do not qualify for deferment, under certain conditions, forbearance allows you to temporarily stop making payments, extend your repayment time, or make smaller payments on your student loans; however, interest does continue to accrue.
Any and all resources available should be used in an effort to continue repaying your loans and avoiding that one little dreaded word – default.
Don't Default!
Default is defined as the situation you enter when you fail to make your loan payments as scheduled. Several institutions can take action to recover the money that you owe, including your school, your loan guarantor, and the federal government (among others).
Here are just a few of the disastrous consequences of default, as cited by the Department of Education:
- National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house.
- You may be ineligible for additional federal student aid if you decide to return to school.
- Loan payments can be deducted from your paycheck.
- State and federal income tax refunds can be withheld and applied toward the amount you owe.
- You may have to pay late fees and collection costs on top of what you already owe.
- You can be sued.
Don’t default! By applying for all available aid, borrowing responsibly, and being aware of all the payment plans and resources available to you, you’ll put yourself in a great position to repay the student loan money you invested in your education.
Comments