Repayment Plans
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The available pre-default repayment plans are different depending on what type of loan you have. (Not Sure What Type You Have?). These plans are not available if you are already in default.
For borrowers entering repayment on or after July 1, 2006, the rules for Direct Loan repayment plans are the same as for FFEL, except for the Direct Loan Income Contingent Repayment Plan (ICR). The Department of Education also has some additional flexibility to create alternative plans to accommodate “exceptional circumstances.” PLUS loan borrowers have nearly all the repayment options that Direct and FFEL Stafford loan borrowers have. The main exception is that the Direct loan income contingent repayment plan is not available to PLUS loan borrowers. Perkins has its own rules, as do private loans.
A standard repayment plan is what you get if you do not make a different choice. You have a minimum of five years, but not more than ten years to repay with a standard plan.
FFEL borrowers are automatically assigned this plan if they do not select a different option within 45 days of being notified by the lender to choose a repayment plan. Standard plans have the highest monthly payments. The monthly amount may vary if there is a variable interest rate.
Click here to use the Department of Education’s calculators to estimate repayment amounts under the different repayment plans. Finaid.org also has calculators to estimate repayment.
Under a graduated repayment plan, payments start out low and increase during the course of the repayment period. The payments usually increase every two years. For FFEL Loans and Direct Loans that entered repayment on or after July 1, 2006, the loan still must be paid over a period of 10 years. However, if your loan balance is high enough, you can make graduated payments as part of an extended repayment plan. Graduated plans tend to work best for borrowers who are just starting out and are likely to see relatively quick increases in earnings over time.
Extended repayment plans are available if you have total outstanding principal and interest exceeding $30,000. In these cases, you may repay on a fixed or graduated payment schedule for a period not to exceed 25 years.
Extended plan monthly payments will be less than under the standard repayment plan. However, you will also pay more interest over the life of the loan because the repayment period is longer.
Perkins repayment plans are different from FFELs and Direct Loans. For example, Perkins loans have minimum monthly repayment rates, set by law. The current rate is $30 for an NDSL loan or a Perkins Loan made before October 1, 1992 and $40 after that date.
Schools are allowed to extend the repayment period due to a prolonged illness or unemployment. Extensions may also be granted if you qualify as a low-income individual. Interest continues to accrue during any extension of a repayment period.
The Department of Education suggests that borrowers contact their school or the school’s agent to get exact Perkins repayment amounts.
Examples of Typical Perkins Loans Repayments
| Total Loan Amount | Number of Payments | Approximate Monthly Payment | Total Interest Charges | Total Repaid |
| $4,000 | 120 | $42.43 | $1,091.01 | $5,091.01 |
| $5,000 | 120 | $53.03 | $1,364.03 | $6,364.03 |
| $15,000 | 120 | $159.10 | $4,091.73 | $19,091.73 |
Source: U.S. Department of Education: The Guide to Federal Student Aid, 2008-09
FFEL Income Sensitive Repayment
The FFEL program offers Income Sensitive Repayment Plans (ISRP). With these plans, your monthly loan payment is calculated based on your expected total monthly gross income. Adjustments are made every year.
You are required to submit income information to the lender in order to establish an Income Sensitive Repayment Plan. These plans are generally less affordable than the Income Contingent Repayment Plan (ICRP) available for Direct Loans. This is because monthly payments under an ISRP, unlike an ICRP, must cover at least accruing interest. Exact payment amounts are set at the lender’s discretion.
If you are already in default, you can get into one of these plans by first consolidating or rehabilitating your loan. Even if you are not in default, you may still want to take advantage of the more affordable Direct Loan Income Contingent Repayment Plan (ICRP). If you have only FFEL loans, you can get an ICRP if the income sensitive payment plan offered to you by a FFEL lender is not acceptable to you. You can get into the Direct Loan program by consolidating your loan, but only if you sign up for the ICRP.
Starting July 1, 2009, there will be a new income-based repayment plan available for FFEL borrowers. We will post more information about this program as the starting date gets closer. The Department of Education is currently working on the rules for the income-based repayment program.
Direct Loan Income Contingent Repayment
Unlike the FFEL income-based plan, monthly payments under an ICRP do not need to cover monthly accruing interest. Monthly payments can be very low, even zero for borrowers with household incomes below the poverty level. Payments go up as income increases. The required payment can be no greater than 20% of any earnings above the poverty level.
If you apply for an ICRP, you must agree to let the government see your recent tax return information. The government requires you to sign a consent form. If you are married, your spouse must also sign the consent form.
The ICRP is available only in the Direct Loan Program, including the Direct Loan consolidation program. If you do not have a Direct Loan, you may want to consider consolidating with the Direct Loan program in order to get an ICRP.
If you continue making ICRP payments for 25 years, any debt that remains is canceled. This canceled amount will be taxed as income. You should consult a tax adviser or professional for more information about possible tax consequences. (see Bankruptcy Tax Guide).
For an excellent resource to help you figure out your monthly payment amounts under an ICRP, visit the Federal Student Aid website. Finaid.org also has an Income Contingent Repayment calculator.
A similar 25 year payment limit will be available in the new income-based repayment program, which starts on July 1, 2009 and will be available to both FFEL and Direct Loan borrowers. The income-contingent repayment plan will still be an option for Direct Loan borrowers as well. The Department of Education is currently working on the rules for the income-based repayment program.
Most of the strategies discussed here apply only to borrowers with federal government student loans. Private lenders may offer similar programs, but they are not required to do so. Still, they must at least fulfill any promises they have made about the types of options they offer. For example, a private lender may offer loan modification or forbearance. See section J of this sample private loan contract. There are almost as many private student loan repayment plans as there are lenders.
You should review your private loan contracts carefully to better understand what rights you have.
Many private student lenders also offer small reductions in interest or other benefits for consecutive on-time or automatic debit payments. You should be careful as these “deals” are not always what they seem to be. Some lenders offer incentives that very few borrowers ever achieve. Federal lenders often offer similar discounts. Visit the Project on Student Debt for tips on Comparing Student Loan Discounts.
You can change plans to suit your financial circumstances by contacting your lender. FFEL lenders must allow you to switch at least once each year but most will let you switch more often if necessary. Borrowers with Direct Loans may change plans at any time by notifying the Department of Education. However, if you are repaying your Direct Loan through ICRP, you cannot change plans until you have made payments in each of the previous 3 months before requesting the change.
Examples of Typical Direct and FFEL Stafford Loan Repayments
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| Estimated Monthly Payments and Total Amounts Repaid Under Different Repayment Plans | For Direct Loans Only: Income Contingentc Income = $25,000 |
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| Initial Debt When You Enter Repayment | Standard Not to exceed 10 years |
Extendeda | Graduatedb Not to exceed 10 years |
Single | Married/HOHd | |||||
| Per Month | Total Repaid | Per Month | Total Repaid | Per Month | Total Repaid | Per Month | Total Repaid | Per Month | Total Repaid | |
| $3,500 | $50 | $4,471 | Not Available | $25 | $5,157 | $27 | $6,092 | $25 | $6,405 | |
| $5,000 | $58 | $6,905 | Not Available | $40 | $7,278 | $38 | $8,703 | $36 | $9,150 | |
| $7,500 | $83 | $10,357 | Not Available | $59 | $10,919 | $57 | $13,055 | $54 | $13,725 | |
| $10,500 | $121 | $14,500 | Not Available | $83 | $15,283 | $80 | $18,277 | $76 | $19,215 | |
| $15,000 | $173 | $20,714 | Not Available | $119 | $21,834 | $114 | $26,110 | $108 | $27,451 | |
| $40,000 | $460 | $55,239 | $227 | $83,289 | $316 | $58,229 | $253 | $72,717 | $197 | $84,352 |
a Payments are calculated using the fixed interest rate of 6.8 percent for student borrowers for loans made on or after July 1, 2006.
a This repayment plan is available to borrowers who have no outstanding balance on a Direct Loan as of Oct. 7, 1998, or who have obtained a Direct Loan after Oct. 7, 1998, and have an outstanding balance on Direct Loans that exceeds $30,000. The amounts were rounded to the nearest dollar and were calculated based on a 25-year repayment plan.
b This is an estimated monthly repayment amount for the first two years of the term and total loan payment. The monthly repayment amount will generally increase every two years, based on this plan.
c Assumes a 5 percent annual growth (Census Bureau) and amounts were calculated using the formula requirements in effect during 2006.
d HOH is Head of Household. Assumes a family size of two.
Source: U.S. Department of Education: Funding Education Beyond High School 2008-09
Lenders are allowed to credit any payment received first to accrued late charges or collection costs, then to any outstanding interest, and finally to outstanding principal. This is also true for schools collecting Perkins loans, and private loans.
This means, for example, that, if the collection rate for a particular year is 24%, then 24% of each payment you make is applied to collection costs, the balance to interest, and then, if the payment is sufficient, to the reduction in the principal.
You may repay the entire loan or any part of a federal loan at any time without penalty. If you send in a payment amount that equals or exceeds the monthly payment amount, the lender must apply the prepayment to future installments by advancing the next payment due date, unless you request otherwise.
If you would like to prepay some of the principal on your loan, you must request in writing that the extra amount you send be applied to principal. Send the payment and request together, via certified mail, get a receipt, and keep copies for yourself.
Private lenders may charge you a penalty if you repay early. You should read your loan agreement carefully to look for rules related to prepayment.
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How is Interest Calculated? Interest on all federal loans is calculated on a simple daily basis. The following formula demonstrates how the sample interest is calculated between payments: Average daily balance between payments For example: Average daily balance $10,000 Monthly Interest: $65.71 |