Student Loan Repayment

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Student loan repayment options are available to help college graduates ease their financial burden each month. This is especially true if you're struggling to find a job after graduation.

In this publication, we're going to be discussing the options available to former students that are now responsible for repaying their student loans. As part of that discussion, we'll first talk about repayment timelines and the counseling you should receive before leaving school. Then we'll describe the variety of repayment options that are available for each loan type.

Loan Repayment Timeline

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For most federal student loans, the repayment timeline starts six to nine months after you graduate, leave school, or fall below half-time enrollment status. Essentially, this is a grace period that you are granted with all federal loan programs.

You should be aware that you have options when it comes to repaying the loan. We're going to discuss those options, along with the government's expectations of how former students should repay their loans.

Loan Repayment Counseling

As you're leaving school, you should receive some form of counseling that will describe the process of repaying your loan as well as the timeline, or term, of repayment. Unlike a car loan or a mortgage, a student loan is an unsecured loan made to you. This means the government cannot take back the degree that you may have earned, however, they do have some recourse that we will talk about later on.

The loan repayment counseling session should help you to both understand your financial obligations and avoid default on your student loan.

Repayment of Direct Student Loans

The Direct student loan programs provided by the Department of Education offer former students a total of four different repayment plans including:

Standard Repayment Plan - fixed monthly payments of at least $50. Depending on the loan amount, the repayment term is up to 10 years.
Extended Repayment Plan - fixed monthly payments of at least $50. Depending on the loan amount, the repayment term is anywhere from 12 to 30 years.
Graduated Repayment Plan - monthly payments start low, and then gradually increase over time. Depending on the loan amount, the repayment term is anywhere from 12 to 30 years. Monthly payments are "capped" at 1.5 times what your monthly payment would have been under the Standard plan.
Income Contingent Repayment Plan - monthly payments are based on family size and your family's annual income. If your income goes up, then so do your monthly student loan payments. If the calculated monthly payments result in an outstanding loan balance after 25 years, then the remainder of the student loan is forgiven.

We've included more detail on these repayment plans in our article: Direct Student Loans.

Repayment of FFEL Student Loans

FFEL student loans, such as Stafford loans, are repaid to a private lending institution. This means each lending institution can have slight variations on the information presented below. That being said, the FFEL program offers four repayment plans:

Standard Repayment Plan and Graduated Repayment Plan - the terms of these two plans are identical to those mentioned above for Direct student loans.
Income Sensitive Repayment Plan - the monthly payments are based on annual income under this plan. If your income goes up, then so does your monthly loan payment.
Extended Repayment Plan - this plan is only available to FFEL borrowers that received aid in excess of $30,000, and obtained their first loan before October 1998. Under this plan, the repayment schedule is increased up to 25 years.

Student Loan Repayment Options

In addition to the traditional student loan repayment plans listed above, there are other repayment options that are available to everyone, or under certain conditions:

Student Loan Consolidation - if you would like to manage just one loan, and perhaps even get a better interest rate, then you might want to consider consolidating your student loan.
Loan Discharge or Forgiveness Programs - in the event of a permanent disability or the passing of the borrower, it is likely that the student loan will be discharged or forgiven. Teachers or childcare providers working in certain areas of the country may also be eligible for student loan discharge or forgiveness.
Loan Deferment - if you are faced with unemployment or another economic hardship, then you might be eligible for a student loan deferment. A deferment allows you to stop your monthly payments on a loan until the deferment period is over.

Failure to Repay a Student Loan

If you do not abide by the repayment schedule for your student loan over a long enough period of time, then you run the risk of being in default on your loan. Under these conditions, the lender and the federal government have a right to take action against you to collect the money owed on your student loans.

The actions that can be taken against you include:

Financial Penalties - the lending institution can bring a lawsuit against you demanding payment. You can also be fined, or assessed, late payment fees.
Forced Repayment - if you are working, the government can take actions to have the loaned money taken directly from your paycheck. This is sometimes referred to as garnishing wages. They also have a right to withhold any income tax refunds, and apply that money towards your student loan.
Credit Reporting - notification can be sent to credit reporting agencies, which will affect your credit rating and / or credit score. A poor credit rating can make securing future loans, such as a mortgage, more difficult.
Ineligibility for Student Aid - in the event that you ever want to go back to school, you may no longer be eligible for a student loan.

If you need additional information on repayment of student loans, you can contact your lending institution or visit the Department of Education's website: Student Aid on the Web.

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