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Chapter 2: Repayment plans

For Direct and FFEL loans, there are several repayment options available:

  • Standard repayment plan
    This is the default plan that borrowers are put on when they start making payments. You pay a fixed monthly amount for ten years (or less if the amount you borrowed was small). The monthly payment is the highest under this plan, but because of this, you pay the least amount in interest over the life of the loan.

  • Graduated repayment plan
    The payment can start out as low as half of what the standard plan offers (but never below the interest amount) and is typically increased every two years. If you owe enough, you can combine this plan with the extended repayment plan. Otherwise, the loan must still be paid off in ten years (for loans that entered repayment on or after July 1, 2006), meaning that the later payments will be higher than under the standard plan. This plan may be appropriate for you if your income is low now, but you expect it to increase significantly in the future.

  • Extended repayment plan
    This plan allows you to stretch the length of your repayment period to up to 25 years, which lowers your payment. You must owe at least $30,000 to use this plan.

  • Income-contingent repayment plan (for Direct loans only, excluding parent PLUS loans)
    Income and family size are taken into consideration when determining your monthly payment for this plan. Your financial circumstances are reassessed every year, so as your income rises and falls, your payment does too. For those with limited income, the monthly payment can be very low, even less than the interest charges. The repayment period can last longer than 10 years, and any loan balance remaining after 25 years of payment is canceled (10 years if you have a public service job).

  • Income-sensitive repayment plan (for FFEL loans only)
    Like with the income-contingent repayment plan, your monthly payment is based on your income. However, the payment must cover at least the interest, and the repayment period is limited to ten years, so later payments will be higher.

  • Income-based repayment plan (not available for parent PLUS loans)
    This is another plan where your payment is based on your income. In order to qualify, you must have a certain level of student loan debt relative to your income and family size. Borrowers may be able to get a lower payment with the income-based repayment plan than the income-contingent or income-sensitive repayment plan. The monthly payment amount can be less than the interest charges, and any loan balance remaining after 25 years is canceled (10 years for Direct loans if you have a public service job).

The chart below illustrates the monthly payments and interest charges under each repayment plan for a Direct Stafford loan, based on a loan amount of $50,000, interest rate of 6.8%, and borrower with an adjusted gross income of $35,000 and family size of 1.

Repayment
Plan
Term
(years)
Monthly
Payment
Interest Paid
Total
Paid
Standard
10
$575
$19,048
$69,048
Graduated Standard
10
$395 (initial)
$863 (final)
$22,778
$72,778
Graduated Extended
25
$283 (initial)
$496 (final)
$62,770
$112,770
Extended
25
$347
$54,112
$104,112
Income-Contingent
15.8
$403 (initial)
$443 (final)
$32,397
$82,397
Income-Based

25

$234 (initial)
$477 (final)
$74,341
$104,812
($21,722 forgiven)

*These numbers are estimates only. Actual payments may vary. For the income-contingent and income-based
repayment plans, it is assumed that there is an annual 3% increase in income and the poverty line.

For FFEL loans, you have a right to switch your repayment plan once a year (lenders can allow more frequent switching at their discretion). For Direct loans, you can switch plans as often as you want. Remember, using an alternative to the standard payment plan will increase the amount of interest you have to pay over the life of the loan. When deciding whether or not to select an alternative payment plan, it is a good idea to look over your budget and other debt obligations to see how much you can afford to pay. If selecting the income-contingent plan is the only way you can pay your rent and your student loans, it makes sense to choose that option, but don’t choose it because it will give you more money for dining out.

Like for FFEL and Direct loans, the standard repayment period for Perkins loans is 10 years or less. Alternative repayment plans are not available, but schools can extend the repayment period for low-income borrowers or those facing prolonged illness or unemployment. Alternative repayment plans may also not be offered for private loans, but if you are struggling, you can talk to your lender about the possibility of restructuring your loan.

There is no prepayment penalty for federal student loans. (Check with your lender for private loans.) If you can spare the cash and don’t have other debt with a higher interest rate, paying extra on your student loans is a great way to save money. Be sure to let the lender know that this is an extra payment, not an early payment for the next month.

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