Student Loan Repayment Options
Lenders offer a variety of plans to repay your student loans — some of them quite flexible. The plans available to you depend on the types of loans you have. Find out what kind of loans you have, learn about your options, then make the best choice for your financial situation.
Different rules apply to federal and private student loans. The options discussed in this article are available for federal loans. If you don’t know what type of loan you have, see Types of Federal Student Loans and Private Student Loans.
Loans issued by banks or the federal government. There are two kinds of federal loans — both allow you to choose from the repayment plans discussed below.
Federal Family Education Loans (FFEL) are loans made by private lenders that are guaranteed by the federal government. That means, if you default, the lender gets reimbursed by the federal government.
Federal Direct Loans are made directly by the federal government.
School-issued federal loans. If you have school-issued federal student loans (such as Perkins loans), ask your school about repayment options.
Private loans. Private loans, made without federal funds, come with fewer repayment options. Contact your lender, loan holder, or loan servicer to find out your repayment options.
Tips on Switching Repayment Plans
Keep these in mind when considering repayment plans:
Don’t wait to switch payment plans until you’re seriously behind in your payments — if you’re in default on your loans, many of these options won’t be available to you.
You aren’t locked into the method you choose — you can switch payment plans each year, or in some cases, more often.
Types of Repayment Plans for Federal Student Loans
Here are your repayment options if you have a federal loan.
Standard Repayment Plan
This is the repayment plan offered by your lender. You make payments for up to ten years. Your monthly payments are higher than in other plans, but your total payments are lower because you pay less interest.
Graduated Repayment Plan
Under a graduated plan, payments start out low and increase during the repayment period — usually every two years. This is a good option if your income is low when you graduate but will increase quickly.
Extended Repayment Plan
An extended plan allows you to stretch your repayment over a period of up to 25 years, depending on your loan amount. To be eligible for this plan, you must have an outstanding loan balance of more than $30,000.
You can combine an extended plan with graduated payments, which will lower your payments even further but will increase your overall costs even more.
Repayment Plans for Financial Hardship
There are a number of plans available if your income is low or unstable, or you have moderate income with very high student loan debt. You might be eligible for these plans even if your financial troubles are temporary. Which plan is available to you depends on what type of loan you have. For the first three, you submit your financial information every year, and the lender will adjust payments accordingly.
Income Contingent Repayment Plan (ICRP)
If you have a federal Direct Loan (other than a PLUS loan), you can opt for an income contingent repayment plan. Your payments could be as low as $5 or even $0. Rmember though, if your payment is lower then the monthly accrued interest, as time goes on, your loan principal will continue to grow. If you haven’t paid off your loan after 25 years, the government will cancel the remaining balance. The IRS will treat this canceled debt as income.
Income Sensitive Repayment Plan (ISRP)
If you have a FFEL loan, you may qualify for an income sensitive repayment plan. In this plan, your payments are based on your annual income, family size, and total loan amount. Your payments must at least cover accruing interest (unlike income contingent plans for Direct Loans). You must pay the loan off in ten years.
Income Based Repayment Plan (IBRP)
You can get an IBRP for both Direct loans and FFELs, but you cannot be in default to qualify. IBRP offers more flexible options than under ICRPs or ISRPs. Your debt is eliminated after 25 years of payments, payments can be less than the accruing interest and may be less than under ICRPs or ISRPs.
Hardship Repayment Plans for Perkins Loans
If you have a Perkins loan, you must pay at least $40 per month, but the school can extend repayment for another ten years or allow additional extensions for prolonged illness or unemployment.
You can find calculators to see what your payment would be under an IBRP or ICRP at http://studentaid.ed.gov. For information on an ISRP, contact your loan holder.
With loan consolidation, you consolidate one, some, or all of your loans into one loan.
Loan Deferment or Forbearance
If your loan payments are enormous or you’ve fallen on hard times, even the most flexible payment plan might not help ends meet. In many circumstances, it’s possible to temporarily postpone making your loan payments or reduce the amount of your payments. These periods of relief are known as deferments (during which the government pays your interest) and forbearances (during which the amount you owe keeps going up because interest isn’t being paid). To learn more on postponing payments, see Nolo’s article Student Loans: Cancellation, Deferment, and Forbearance.
For a comprehensive guide to dealing with financial difficulties, read Margaret Reiter’s Solve Your Money Troubles: Debt, Credit Bankruptcy (Nolo).