Flexible Repayment Options for Federal Loans
We have outlined the basics of the plans below. For complete explanations and access to repayment calculators, visit the Federal Student Aid Repayment website.
Federal student loans offer a number of flexible repayment options. We have outlined the basics of the plans below. For complete explanations and access to repayment calculators, visit the Federal Student Aid Repayment website. It is important to keep in mind that there are never any prepayment penalties on student loans so you can always make extra payments to save on interest.
The standard repayment option for Federal Direct Loans amortizes the repayment evenly over a ten year repayment period. Though your payments will be the highest on this plan, you will pay the least in interest. Your loan repayment will default to this plan unless you choose another option below.
Borrowers who borrowed their first student loan in October of 1998 or later are eligible to select an extended repayment term up to 25 years, if they have borrowed a minimum of $30,000. This will lower your payments significantly, but you will pay much more in interest.
INCOME CONTINGENT REPAYMENT (ICR)
Under this plan, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans.
The maximum repayment period is 25 years. If you haven't fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may, however, have to pay taxes on the amount that is discharged.
INCOME BASED REPAYMENT (IBR)
The Income Based Repayment plan calculates your monthly payment as a percentage of your income. The IBR option results in a smaller monthly payment than a borrower would have under ICR.
PAY AS YOU EARN
The Pay As You Earn option affords student loan borrowers the opportunity to have the monthly payment on their federal loans calculated as a percentage of available income rather than being dependent upon the amount borrowed. The PAYE option results in a smaller monthly payment than a borrower would have under ICR or IBR.
This program is available only to those borrowers who did not have an outstanding Federal Stafford or PLUS Loan balance as of October 1, 2007 and who also received a new disbursement from a Federal Direct student loan on October 1, 2011 or later.
Consolidation offers the borrower the opportunity to combine any federal student loans into one consolidation loan. The consolidation loan will have a longer repayment term and a slightly higher interest rate (based on the interest rates of the loans included in the consolidation), which results in a lower monthly payment. Consolidation is more of a budget management tool than a savings option. Borrowers can learn more and start the consolidation application here.
PUBLIC SERVICE LOAN FORGIVENESS
Public Service Loan Forgiveness can be a relief for public service employees who carry significant federal student loan debt. This program allows any student loan borrower who has made 120 qualifying payments on their Federal Direct Student Loans while working full-time in public service work to have the remaining balance of the loan forgiven.