REPAY

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Repayment Options

When choosing a repayment plan, what are my options?

There are flexible repayment plans to help you manage this important financial responsibility. The repayment plans* below are for Direct and FFEL Stafford Loans.

• Standard Repayment Plan: You generally pay a fixed amount each month for up to 10 years. Your payment must be at least $50 a month.



• Graduated Repayment Plan: Your payments start out low at first and then will increase, usually every two years. You must repay your loan in full within 10 years. At a minimum, your payments must cover the interest that accumulates on your loans between payments. This plan is tailored to individuals with relatively low current incomes (e.g., recent college graduates) who expect their incomes to increase in the future. However, you'll ultimately pay more for your loan than you would under the Standard Plan, because more interest accumulates in the early years of the plan when your outstanding loan balance is higher.



• Extended Repayment Plan: If you're a FFEL borrower, you must have more than $30,000 in outstanding FFEL Program loans. If you're a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans. This means, for example, that if you have $35,000 in outstanding FFEL Program loans and $10,000 in outstanding Direct Loans, you can choose the extended repayment plan for your FFEL Program loans, but not for your Direct Loans.
  
  Your fixed monthly payment is lower than it would be under the Standard Plan, but you'll ultimately pay more for your loan because of the interest that accumulates during the longer repayment period.



• Income-Sensitive Repayment Plan (for FFEL Loans only): With an income-sensitive plan, your monthly loan payment is based on your annual income. As your income increases or decreases, so do your payments. The maximum repayment period is 10 years.



• Income-Contingent Repayment Plan (for Direct Loans and Direct PLUS Loans): Your monthly payments will be based on your annual income (and that of your spouse, if married), your family size, and the total amount of your Direct Loans. Borrowers have 25 years to repay under this plan, the unpaid portion will be forgiven. However, you may have to pay income tax on the amount that is forgiven.
  
  Effective July 1, 2009, graduate and professional student PLUS borrowers in the Direct Loan program will be eligible to use the income-contingent repayment (ICR) plan. Direct Loan parent PLUS borrowers will not be eligible for the ICR repayment plan.



• Income-Based Repayment (IBR): Under this plan, your required monthly payment amount will be based on your income during any period when you have a partial financial hardship. Your monthly payment amount may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you repay under this plan and meet certain other requirements over a specified period of time, you may qualify for cancellation of any outstanding balance on your loans. Contact the Direct Loan Servicing Center (for Direct Loans) or your FFEL lender (for FFEL Program loans) for more information about the Income-Based Repayment Plan.

NOTE: Federal Perkins Loans have different repayment options. Your payment depends on the amount that you borrow, but the minimum is $40 per month.

Prepare for your new financial responsibilities A lot will be going on as you prepare to graduate. Not only do your loans enter repayment after your grace period,* but there are other financial responsibilities you need to think about. Think about all the living expenses you will have. Get rough estimates of salaries in different careers by checking the Occupational Outlook Handbook at www.bls.gov/oco Check jobs advertised, and living expenses, in the area where you plan to live. Get a handle of your financial situation by knowing exactly where all your money goes. Put all your expenses on paper (see Appendix G) to give you an idea of what expenses you might have.

Payments are calculated using the fixed interest rate of 6.8 percent for Stafford Loans first disbursed on or after July 1, 2006.

^aFor a FFEL borrower, the requirement is that the borrower (1) must have had no outstanding balance on a FFEL Program loan as of Oct. 7, 1998, or on the date the borrower obtained a FFEL Program loan on or after that date, and (2) must have more than $30,000 in outstanding FFEL Program loans.   For a  Direct Loan borrower, the requirement is that the borrower (1) must have had no outstanding balance on a Direct Loan Program loan as of Oct. 7, 1998, or on the date the borrower obtained a Direct Loan Program loan on or after that date, and (2) must have more than $30,000 in outstanding Direct Loan Program loans. The amounts were rounded to the nearest dollar and were calculated based on a 25-year repayment plan.

^bThis 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.

^cAssumes a 5 percent annual growth (Census Bureau) and were calculated using the formula requirements in effect during 2006.

^dHOH is Head of Household. Assumes a family size of two.

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You can find a repayment calculator at www.FederalStudentAid.ed.gov.

Why do I have an outstanding balance?

Repayment schedules and payment coupon books are designed on the assumption that all payments will be made on time. If you do this and pay the correct amount each month, you'll pay your loan in full by the end of the repayment schedule. If you're delinquent,* excess interest* will accrue.* You might also have collection charges or late fees. Interest also accrues during forbearance* and deferment.* So, if you pay the correct monthly payment amounts but have delinquency during repayment, you'll have an outstanding balance at the end of the repayment schedule. Similarly, if extra interest has accrued, your balance will go up. You're responsible for paying that outstanding balance.

Can I do anything to lower my monthly payments?

The Direct Loan Programs offers a 0.25 percent rate discount* for automatic payments. For FFEL Program loans, check with your lender.* You might also be able to switch payment plans, see Repayment Options for available plans, and check with your lender* for details.

Are there any repayment incentive benefits?

A repayment incentive can be an up-front interest* rebate to borrowers. For example, Direct Stafford Loans offer borrowers a rebate amount equal to 1.5 percent of the loan amount borrowed. This is the same amount that would result if the interest rate was lowered on a loan by approximately 0.24 percent, but the borrower receives the rebate up front.

• The Direct Loan Program currently offers two repayment incentive programs. One is the interest rate reduction for having payments automatically debited from the borrower's bank account (discussed in the preceding section). The other is the up-front interest rebate that is equal to a "certain percentage" of the loan amount borrowed, and is the same amount that would result if the interest rate was lowered by a "specified percentage." The result of the rebate is an increase in the net loan amount that the borrower receives up-front when the loan is disbursed.



• A lender* in the FFEL Program might offer incentives for making payments on time, such as a reduction in the interest rate. Contact your lender* to find out if any incentives are offered.

What are Internal Revenue Service (IRS) tax credits?

The IRS offers two federal income tax credits (tax credits offer dollar-for-dollar reductions in your final tax liability) to certain taxpayers for higher education expenses.

• The Hope Tax Credit, worth up to $1,650 per student, is available for first- and second-year students enrolled at least half-time.*



• The Lifetime Learning Tax Credit is a tax benefit equal to 20 percent of a family's tuition expenses, up to $10,000, for virtually any postsecondary education and training. This applies to undergraduate, graduate and professional degree students and even for less than half-time* study.

For more information on the Hope and Lifetime Learning tax credits, and other tax benefits for postsecondary students, go to www.irs.gov. IRS Publication 970, Tax Benefits for Higher Education, which explains these credits and other tax benefits, is available online, or call 1-800-829-1040. TTY callers should call 1-800-829-4059.