Repayment
The repayment phase is the longest part of the loan process. Stafford Subsidized and Unsubsidized loans, the most common forms of federal aid, begin repayment six months after students graduate, withdraw from school, or drop below half-time status, while Perkins loans begin repayment after nine months, and PLUS loans for parents begin repayment after approximately 30 to 45 days.
Before they are asked to begin making payments, all students, through their schools’ financial aid offices, will receive Exit Counseling: a thorough explanation of the responsibilities involved in repaying a student loan. Lenders, or their designated servicing organizations, should contact each borrower during the grace period with information about repayment. However, if the borrower is not contacted by their lender or servicing agent for each of his or her loans, the borrower should take responsibility for contacting the lenders. The responsibility for repayment rests on the borrower.
Borrowers may change their repayment schedules once a year, or get more information on these options, by contacting their lenders.
Students have several options for repayment:
Standard Repayment
Standard Repayment is the normal schedule for all loans. The standard repayment period for each loan lasts up to 10 years, depending on the amount of the loan. Payments must be at least $50 a month.
Extended Repayment
Extended Repayment stretches the repayment period to 25 years. This option is available to borrowers whose oldest loan was originated on or after October 7, 1998. On the positive side, this schedule lowers borrowers’ monthly payments. However, it’s important to note that the Extended Repayment schedule increases the total amount of interest that borrowers pay over the life of the loan.
Graduated Repayment
Graduated Repayment is designed for borrowers who anticipate making increasing financial progress over time. This schedule reduces borrowers’ monthly payments initially to interest-only payments for up to 4 years. Payments then increase gradually so that the loan is repaid in the same amount of time as under Standard Repayment. The Graduated Repayment schedule increases the total amount of interest borrowers pay over the life of the loan.
Income-Sensitive Repayment
Borrowers who don’t earn enough to cover their loan payments may be eligible for Income-Sensitive Repayment, which arranges a monthly payment between 4% and 25% of borrowers’ gross monthly income. Borrowers may be able to use this option for up to 5 years, though it may extend loans’ repayment term for up to 15 years. Income-Sensitive Repayment reduces borrowers’ monthly payment amount; however it increases the total amount of interest paid over the life of the loan.
Consolidation
Consolidation is a popular repayment option that allows borrowers to combine multiple loans into 1, extend the repayment term, and, in some cases, lower the monthly payment.
The most important thing for borrowers in repayment is to keep their loans in good standing and not fall behind.
researching > applying > budgeting > repaying
