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Before and After Paying for College Part III: Repayment Plans

October 13, 2020 by Hunter Swanson

Dealing with student loans can be intimidating. We’re here to help. In Before and After Paying for College Part I: Finding Financing, we provided several steps to overcome the daunting task of paying for college. Part II: What, When, & Who gave three questions you need to answer when paying off student loans.

Part III: Repayment Plans is all about how to go about repaying those loans. For Direct and Federal Family Education (FFEL) Loans, there are several repayment options available:


Standard

This is probably what you originally agreed to. You pay a fixed monthly amount for ten years (or less if the amount you borrowed was small).


Graduated

Payments can start out as low as half of what the standard plan offers and are typically increased every two years. This plan may be appropriate for you if your income is low now, but you expect it to increase significantly in the future.


Extended

This plan allows you to stretch the length of your repayment period to up to 25 years, which lowers your payment. You must owe at least $30,000 to use this plan. Be aware that this could mean you pay more interest overall.


Income-Contingent (for Direct loans only, excluding parent PLUS loans)

Income and family size are taken into consideration when determining your monthly payment for this plan. For those with limited income, the monthly payment can be very low.


Income-Sensitive (for FFEL loans only)

Your monthly payment is based on your income, however, the payment must cover at least the interest, and the repayment period is limited to ten years.


Income-Based (not available for parent PLUS loans)

In order to qualify, you must have a certain level of student loan debt relative to your income and family size. For FFEL loans, you have a right to switch your repayment plan once a year. For Direct Loans, you can switch plans as often as you want.


Consolidation

This is combining existing federal loans into one new loan, which may lower the payments. Unfortunately, you cannot combine private and federal into a federal consolidation loan. If you are not current on your payments, that’s okay. Many delinquent borrows use this method to get back on track.


If You Cannot Pay

If you find yourself unable to pay your federal student loans, you may be able to get relief with a deferment or forbearance. A deferment is a temporary suspension of payments. If your loans are subsidized, the interest will be suspended; if not, interest will continue to accrue. Deferments are only permitted under certain circumstances, including enrollment as at least a half-time student, temporary total disability, enrollment in a graduate fellowship program, unemployment or other economic hardship, active duty in the armed forces, or participation in a rehabilitation program for the disabled.

Forbearance, which is suspending or lowering your loans temporarily due to financial stress, is similar except interest continues to accrue regardless of whether your loans are subsidized.


We hope that the Before and After Paying for College series has helped answer any questions you have surrounding student loans. If you missed our previous posts, please check out Part I: Finding Financing and Part II: What, When, & Who to further help take some of the worry out of your student loans.

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