Now that we have discussed the basic information about your student loans we can get into the options you have for repayment. So you just got your first bill in the mail, you open it up and about fall out on the floor. You realize that there is NO way you can make that full payment amount. I know it’s stressful, but DON’T PANIC, you have options! In this part
Like I mentioned in the last post when you receive your first bill your loan is set to be paid on a Standard Repayment. Basically meaning that you will be paying on your loan for ten years with a fixed interest rate. If your loan is paid on time, every month then your payment amount should remain roughly the same. Remember though, your loan accrues interest DAILY, so you always need to take that into account. If standard repayment won’t work for you then you can look into other options.
GRADUATED REPAYMENT
This may be a good plan for you IF you expect your income to increase regularly. This payment plan works like it’s name would lead you to believe. You will still be paying for 10 years, but your initial payments will be lower and increase over time. You will never make a payment LESS than the interest your loan will accrue from one month to another. Over the course of your repayment you will see your bill increase roughly every 2 years.
EXTENDED REPAYMENT
Borrowers who qualify for this program have OVER $30,000 in Federal Family Education Loans (FFEL) and/or Direct Loans. So, if you only have $5,000 in FFEL Loans, and $38,000 in Direct Loans ONLY your Direct Loans would qualify for this program. *Please note: FFEL Loans are NO LONGER distributed as of July 1, 2010. All loans after this date come directly from the Department of Education through the Direct Loan program.* Under this plan you will extend your repayment to up to 25 years and you can pay either a graduated or fixed amount. Also, choosing this plan will LOWER your monthly payment, but ultimately you will pay a higher amount because of the continuing interest accumulation.
INCOME CONTINGENT REPAYMENT (ICR)-DIRECT LOANS ONLY
This plan is ONLY for DIRECT LOANS. Beginning July 1, 2009 professional and graduate student PLUS borrowers became eligible to use the ICR plan. However, Parent Direct Plus loan borrowers remain ineligible. The goal of this plan is to provide you with some flexibility, but allow you to meet the obligations you have to repay your loans without putting a HUGE financial burden on you. Basically every year your payments will be recalculated based on your adjusted gross income. If you’re married this will be calculated based on both you and your spouse. They also take into account the total amount of your DIRECT loans and the size of your family. Under this plan your monthly payment will be the lower of:
- 20% of your discretionary income each month.
- The amount that would be repaid over 12 years multiplied by a percentage of income that changes with the income you earn annually.
Interest on your loans will be capitalized one time every year if the payments you are making monthly do not cover that amount of interest that is accumulating. However, there is a cap on the amount of interest that can accrue. The interest being capitalized won’t be over 10% of the amount that was owed upon entering repayment originally. Though interest will still accumulate it will not be added onto the principal balance of the loan.
Under the Income Contingent plan the period of repayment is 25 years. If after 25 years your loans are not fully repaid the remaining balance will be discharged. Any time that you have spent in forbearance or deferment will not count towards the 25 years. However, after the loans are discharged you may be required to pay taxes on the discharged amount.
If you qualify for this plan you can go HERE to get an estimate of your monthly payments.
INCOME-SENSITIVE REPAYMENT PLAN-FFEL LOANS ONLY
Monthly loan payments under this plan are determined by your annual income and the maximum repayment period is 10 years. As your income changes over time, both increase or decrease, so will your payments. This type of repayment plan is more LENDER specific. To found out more information you will have to actually contact your lender to see what works for you.
INCOME BASED REPAYMENT (IBR)
This repayment plan is still rather new and didn’t come into effect until July 1, 2009 and covers the various types of major federal loans (Subsidized Stafford, Unsubsidized Stafford, Consolidated, and Plus loans under both FFEL and Direct Programs EXCEPT Parent Plus Loans and loans that show in default status, or loans that were consolidated with Parent Plus loans). Under this plan your monthly payment can’t be over an amount that is deemed affordable and varies based on your family size and annual income. This repayment plan will extend your loan to 25 years. If after 25 years of repayment under IBR and meet other requirements any remaining balance of your loans is cancelled. Also, if you work in public service and qualify for IBR the balance remaining after ten years may be cancelled.
If you are married and file your tax return jointly and your spouse’s loans are also eligible for IBR than your spouse’s loans will also be taken into account when determining if you are eligible. You will have to submit documentation ANNUALLY to determine that mount you will be repaying each month. If you don’t continue to submit your information then your loan will return to a standard repayment plan of ten years. Using this repayment plan may cause you to pay more interest, but make your actual repayment manageable.
To determine if you may be eligible for Income Based Repayment go HERE and enter your information.
When deciding on the type of repayment that works for you please remember that you will have to contact your lenders to submit your documentation. In the next section we will be covering the options you have when you can’t make any type of payment, need only a temporary or short-term fix or don’t qualify for any of the repayment options.
Check out the other Student Loan articles in this series!
Repaying Student Loans: Intro (Where to Start)
Repaying Student Loans: Section 1 (When do I have to pay and how much?)
Repaying Student Loans: Section 2 (Your Repayment Options)
Repaying Student Loans: Section 3 (What if I can’t make my payment?)
Repaying Student Loans: Section 4 (What if I don’t qualify for deferment?)
Repaying Student Loans: Section 5 (Can my loan be discharged?)
Repaying Student Loans: Section 6 (Loan Forgiveness Programs)
Repaying Student Loans: Section 7 (Loan Consolidations)
Repaying Student Loans: Section 8 (Questions and Answers)
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