Student Loan Repayment

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Student Loan Repayment options can be a pretty big deal if you've just graduated from college and you are wondering when and how you are going to start to repay your student loans. It was nice getting that helping hand to finance your education. But now that you're out, you have to struggle to find a job while that repayment clock is ticking.

Loan Repayment Timeline

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 do have some options when it comes to repaying the loan. And we're going to discuss those options with the government's expectations of how former students should repay their loans.

Loan Repayment Counseling

Additional Resources

As you're leaving school, you should receive some form of counseling that will describe for you the process of repaying your loan along with the timeline or term of repayment. Unlike a car loan or a mortgage, a student loan is an unsecured loan made to you. That means the government cannot take back from you 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 help you to avoid default on your student loan.

Repayment of Direct Student Loans

The Direct student loan programs offered through 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, so do your monthly student loan payments. If the calculated monthly payments result in an outstanding loan balance after 25 years of payments, 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. That 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 got 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 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 child care 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 you might be eligible for a student loan deferment. A deferment allows you to stop you 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 you owe 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 loan 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 that 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 Educations website - Student Aid on the Web.

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