Repayment of Student Loans

Repayment

All good things must end. The great part about having money to pay for college comes to an end the moment you walk across the graduation stage, or when you drop out. Student loans are provided to students on the premise that they WILL be paid back to the lender. Most student loan programs have flexible repayment plans and each loan program has their own particular rules and requirements.

Federal Education Loans

Federal education loans have four main types of repayment plans available. Each plan must be examined closely to determine what best fits a student’s needs. Remember, regardless of the repayment plan taken, all extend the term of your loan and the total amount of your loan increased with each passing year as interest accumulates.

The first option is the Standard Repayment plan. This plan allows a student to pay a fixed amount for up to 10 years. The minimum monthly payment is $50.00.

The next option is the Extended Repayment plan. This plan allows for the repayment period to be extended to a term of 12-30 years, but it depends on the amount of money that a student borrowed. Having a repayment plan that is for a longer term does make the monthly amount due much smaller; however, the overall amount of the loan increases.

There is also the Graduated Repayment plan available to borrowers. This plan starts with a low monthly payment and gradually increases the payment every two years. This plan basically assumes that college graduates will start with a lower salary and will eventually increase over time. The loan can be repaid for a period of 12-30 years and, again, it all depends on the amount of money a student borrowed. The monthly payment must be a minimum of $25.00.

Finally there is the Income Contingent Repayment plan. This plan is based on the borrower’s actual income and the total amount of the borrower’s debt. The monthly payments are increased or decreased depending on the borrower’s income. This loan must be repaid within 25 years. This payment plan is ONLY available for Direct Loan borrowers. If you do not have a Direct Loan and instead have a FFELP loan, there are usually Income Sensitive Repayment plans available that are based on a percentage of a borrower’s gross monthly income and must be paid within 10 years.

All federal loans can be prepaid without any penalty. You may only switch repayment plans one time per year. There are repayment plan calculators available to determine monthly payments and to compare each plan. Being up-to-date on your repayment plan keeps a borrower out of DEFAULT. There are serious consequences for borrowers who do not make their monthly payments in a timely manner OR if the borrower does not notify the lender and make arrangements for a deferment or forbearance.