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    student loan repayment

    Posted : September 3, 2005
    Last Updated : September 24, 2013
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    student loan repayment

    Did you know that special programs and options exist for student loan repayment? Here is what you should know about paying back your student loans.

    Options for Repayment
    After you graduate, leave school, or drop below half-time enrollment, you usually get a six-month grace period on federal student loans before you have to start repayment. You will receive information about repayment and will be notified by your loan servicer of the date loan repayment begins. Be sure to ask your servicer for a repayment plan. The following are a variety of repayment options from which to choose:

    • Standard Repayment Plan. This option allows you to pay off your debt within 10 years, and the monthly installment amount remains the same over the life of the loan. The standard repayment plan is automatically established for all of your loans unless you choose one of the other options. This payment schedule is great for someone who has a steady monthly income and can afford the payments. Eligible loans include: Direct and FFELP Subsidized and Unsubsidized Stafford loans, Direct and FFELP PLUS loans, and Direct and FFELP Consolidation loans.
    • Graduated Repayment Plan. This plan gives you a smaller payment amount in the beginning and gradually increases the payment amount every two years. The monthly payment amount will be no less than the monthly interest payment, and the overall interest will accrue over the life of the loan. The graduated repayment plan is great for someone who expects to have steady wage increases. Eligible loans include: Direct and FFELP Subsidized and Unsubsidized Stafford loans, Direct and FFELP PLUS loans, and Direct and FFELP Consolidation loans.
    • Extended Repayment Plan. With this schedule, you will be allowed to pay the least possible amount per month for 10 to 25 years. The length of your repayment period will depend on the total amount you owe when your loans go into repayment. However, you may pay more in interest because you're taking longer to repay the loans. Eligible loans include: Direct and FFELP Subsidized and Unsubsidized Stafford loans, Direct and FFELP PLUS loans, and Direct and FFELP Consolidation loans.
    • Income-Based Repayment Plan. You may be eligtible for this repayment plan if your federal student loan debt is high relative to your income and family size. Your maximum monthly payments will be 15 percent of discretionary income (the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence). If you have not repaid your loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven. Eligible loans include: Direct and FFELP Subsidized and Unsubsidized Stafford loans, Direct and FFELP PLUS loans made to graduate or professional students, and Direct and FFELP Consolidation loans without underlying PLUS loans made to parents.
    • Pay As You Earn Repayment Plan. This option is similar to Income-Based repayment in that it bases your student loan payments on income and family size. However, for Pay As You Earn, your maximum monthly payments will be 10 percent of discretionary income instead of 15 percent. If you have not repaid your loan in full after you made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven. Eligible loans include: Direct Subsidized and Unsubsidized Stafford loans, Direct PLUS loans made to graduate or professional students, and Direct Consolidation loans without underlying PLUS loans made to parents.
    • Income-Contingent Repayment Plan. This plan is based on your adjusted gross income, family size, and the total amount of your Direct loans. If you do not repay your loan after making the equivalent of 25 years of qualifying monthly payments, the unpaid portion will be forgiven. If you have a low income but do not qualify for the Income-Based Repayment Plan or the Pay As You Earn Repayment Plan, this plan may be for you. Eligible loans include: Direct Subsidized and Unsubsidized Stafford loans, Direct PLUS loans made to graduate or professional students, and Direct Consolidation loans (except Direct PLUS Consolidation loans).
    • Income-Sensitive Repayment Plan. This plan ties the monthly payment to a percentage of your monthly income. So, your monthly payment bill will be proportional to the amount you are currently making, and you'll get up to 10 years to pay it all off. Each lender's formula for determining the monthly payment amount under this plan can vary. Eligible loans include: FFELP Subsidized and Unsubsidized Stafford loans, FFELP PLUS loans, and FFELP Consolidation loans.

    Repayment Trouble
    Sometimes people are under circumstances in which they cannot make their loan payments. Maybe you can't find a job. Maybe you have been injured and can't work for a while. If you find yourself under such circumstances, don't be afraid to ask your loan servicer what options they have available. You may be eligible for the following:

    • Deferment. This is a period of time during repayment in which the borrower, upon meeting certain conditions, is not required to make payments of loan principal. Through deferment you can postpone your scheduled student loan payments for various reasons, such as unemployment, economic hardship, and student enrollment. Your loan servicer determines if you meet the requirements for deferment.
    • Forbearance. This is an option that permits the reduction of payments, an extension of time, or the temporary cessation of payments. It is mainly used for default prevention. If you do not meet the requirements for a deferment, you might qualify for forbearance.

    Definitions
    Financial aid jargon can be difficult to comprehend at times. Here are some more terms you should know before you start paying back your student loans:

    • Principal. This is the loan amount that you originally borrow plus any interest that has been capitalized.
    • Interest. This is a percentage of your outstanding principal loan amount charged for the use of borrowed money.
    • Lender. A lender provides the funds for your student loan.
    • Servicer. A servicer processes student loans for lenders or secondary markets. This includes billing, processing and collecting your student loan payments, changing your repayment plan, and applying deferments and forbearances to suspend your loan payments.
    • Default. Default is falling behind on your scheduled payments over an extended period of time. Being in default means that you have violated your loan agreement. For most federal student loans, you will default if you have not made a payment in more than 270 days. You may experience serious legal consequences if this happens.
    • Prepayment. All federally sponsored loans and most private loans allow you to pay part or all of your obligation before scheduled payments, at any time during the life of the loan without penalty. Prepaying can greatly reduce your total borrowing costs.
    • Loan Forgiveness. The cancellation of all or some portion of your remaining federal student loan balance. If your loan is forgiven, you are no longer responsible for repaying that remaining portion of the loan.

    Before you go overboard on purchases after college, remember that you will need to calculate your student loans into your expenses. Use our student loan repayment calculator to estimate your monthly payment. If you don't repay your loans, you could mess up your credit history for years and lose your ability to borrow money in the future.


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