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Planning and Managing Your Loan

Loans are a valuable tool for financing your education. They also require careful planning and management. Knowing  your loan terms and understanding your responsibilities can help you stay on track with your student loans and build a strong financial future.

Repayment Options and Alternatives

After borrowers cease to be enrolled at least half-time, they begin to use their one-time-only, six-month grace period. Borrowers of the Federal Direct Loans enter repayment after their six-month grace period expires.

Effective July 1, 2012, the federal government no longer pays the interest on Federal Direct Subsidized Loans after the borrowers graduate with an undergraduate degree. All repayment options, with the exception of the income-based repayment plan, require that each payment must be at least equal to the interest accrued on the loan between scheduled payments.

Visit studentaid.gov for an Overview of Direct Loan and Federal Family Education Loan (FFEL) Program Repayment Plans.

Standard Repayment

Borrowers repaying loans under the standard repayment plan pay a fixed amount of at least $50 each month for up to 10 years, not including deferment and forbearance periods. This plan generally repays the loan with the lowest interest cost to the borrower.

Graduated Repayment

Borrowers’ payments are lower at first and then increase, usually every two years. An important feature of this plan is that no monthly payment will exceed more than three times any other monthly payment. Borrowers using this plan typically repay a greater amount of interest than they would have under the standard repayment plan.

Extended Repayment

Borrowers may repay over a 25-year period on a standard or graduated repayment plan if they have loans totaling more than $30,000 and were new borrowers on or after Oct. 7, 1998.

Revised Pay As You Earn Repayment

Borrowers’ monthly payments will be 10% of discretionary income. Payments are recalculated each year and are based on updated income and family size. Borrowers have 20 or 25 years to repay, and the unpaid portion will be forgiven. However, borrowers may have to pay income tax on the amount that is forgiven.

Pay As You Earn Repayment

Borrowers’ maximum monthly payments will be 10% of discretionary income. Also, payments are recalculated each year and are based on updated income and family size. Borrowers have 20 years to repay, and the unpaid portion will be forgiven. However, borrowers may have to pay income tax on the amount that is forgiven.

Income-Based Repayment

Borrowers in repayment or entering repayment who have a partial financial hardship are eligible for income-based repayment. The federal government may pay interest during a portion of the repayment period. Monthly payment amount may be adjusted annually. The maximum repayment period under this plan may exceed 10 years.

Income-Contingent Repayment

Borrowers’ monthly payments are based on adjusted gross income (AGI, plus spouse’s income if married), family size and the total amount of direct loans. Borrowers have 25 years to repay, and the unpaid portion will be forgiven. However, borrowers may have to pay income tax on the amount that is forgiven.

Income-Sensitive Repayment

Borrowers’ monthly payments are based on annual income. Borrowers have 15 years to repay.

Student Loan Consolidation

If you’re holding more than one student loan, loan consolidation can offer a way to reduce your monthly payments and simplify loan repayment. The fixed rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1 percent and cannot exceed 8.25 percent. You may lose certain benefits (such as cancellation benefits, interest subsidies, etc.) that were offered on the loans being consolidated.

Student Loan Forgiveness Programs

Students must repay their educational loans even if they do not complete their education, find a job related to their program of study or are unhappy with the education they paid for with their loan. However, certain circumstances and employment opportunities (especially in public, military and community service areas) may lead to a student’s loans being forgiven, canceled or discharged. For the most updated information about loan forgiveness, please visit studentaid.gov.

Student Financial Aid (SFA) Ombudsman

The Ombudsman serves as an independent, neutral third party who will assist you by researching financial aid problems or complaints and recommending solutions. The Ombudsman cannot reverse decisions, but will help contact other agencies on your behalf. Contact the Ombudsman as a last resort after you have attempted to resolve the issue yourself. See the Ombudsman’s website for tips about conflict resolution.