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One of the benefits of a student loan is the variety of repayment options available. Most student loan payments are set up on a standard repayment plan with monthly payments that remain the same throughout the repayment period. However, other plans are available that may make your payments more manageable.
Prepayment
- You can prepay all or part of your loan at any time without penalty
- Prepayment may substantially decrease your total interest costs
Standard Repayment
- Fixed schedule of equal monthly payments
- Maximum 10-year repayment period
- Minimum $50 monthly payment
Graduated Repayment
- Maximum 10-year repayment
- Monthly schedule starts with small payments that increase gradually over time
- You will pay higher total interest than if you had chosen the standard repayment plan
Income-Sensitive Repayment
- Monthly schedule that assigns fixed payments for one year at a time. Scheduled payments may increase or decrease each year as your income changes
- Maximum 10-year repayment period (can be extended up to five years)
- Substantially increases your total debt. Try to return to a standard repayment plan as soon as possible
Income-Based Repayment Option
(effective July 1, 2009)
Borrowers who meet the conditions of partial financial hardship (based on income and family size) may qualify for an income-based repayment plan.
The payment amount will not be more than 15% of the amount by which the borrower's adjusted gross income exceeds 150% of the poverty line for the family size. If the monthly payment amount is not sufficient to pay accrued interest on a subsidized Stafford loan, the U.S. Department of Education (ED) will pay the remaining interest for a period of 3 years; any outstanding loan balance after 25 years will be forgiven.
More information about income-based repayment, including a chart of examples of IBR payments, is available on the Student Aid on the Web and IBR info Web sites.
Extended Repayment
- Available if your first loan was issued on or after October 7, 1998, and if you total debt exceeds $30,000
- Fixed annual or graduated repayment schedule
- Maximum 25-year repayment period
- Substantially increases your total debt. Try to return to a standard repayment plan as soon as possible
When the time arrives, work with your lender to determine which repayment option works best for you. If you borrow through the Federal Direct Loan Program, your repayment options may be different and you’ll be working with the college rather than a lending institution.
Repayment Option Comparison
The information below compares the "monthly payments" and the "total amount repaid" of the standard and graduated repayment plans using identical 10-year terms and a 6.8 percent interest rate.
|
Standard Repayment Option |
|
Amount Borrowed |
Monthly Payment for 10 Years |
Total Amount Repaid |
|
$10,000 |
$115 |
$13,810 |
|
$15,000 |
$173 |
$20,714 |
|
$20,000 |
$230 |
$27,619 |
| Graduated Repayment Option |
|
Amount Borrowed |
Monthly Payment for 10 Years |
Total Amount Repaid |
|
$10,000 |
1st stage: $68 for 2 years
2nd stage: $89 for 2 years
3rd stage: $115 for 2 years
4th stage: $150 for 2 years
5th stage: $195 for 2 years |
$14,812 |
|
$15,000 |
1st stage: $102 for 2 years
2nd stage: $133 for 2 years
3rd stage: $173 for 2 years
4th stage: $225 for 2 years
5th stage: $292 for 2 years |
$22,220 |
|
$20,000 |
1st stage: $137 for 2 years
2nd stage: $177 for 2 years
3rd stage: $231 for 2 years
4th stage: $300 for 2 years
5th stage: $390 for 2 years |
$29,626 |
Keep in mind, many lenders offer repayment incentives to those who pay their bills on time or pay via electronic payment methods such as direct withdrawal. Such incentives may include interest-rate reductions or cash back. Check with your lender to see if these options are available to you.
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