How to Pick a Student Loan Repayment Strategy
In this clip from our Best Student Loan Repayment Strategies webinar with student loan expert Heather Jarvis, you will learn how to decide upon the best repayment strategy for your own situation as well as what essential information you need to know to make this decision for better student loan debt management.
Webinar Update:
Due to the nature of a live webinar, sometimes it's helpful to clarify some parts of the live conversation to make sure there's no confusion. Here's a few points discussed in the webinar that we wanted to clarify:
- You're entitled to one free credit report, every year, from any of the 'big three' reporting agencies.
- Both the Standard and Graduated Federal Loan repayment plans have a repayment term between 5 - 10 years.
You can now apply for income-driven repayment plans easily and online! If you're considering the income-driven repayment plans of IBR, ICR or Pay As You Earn for your Direct Loans, you can now login to the Department of Education's Direct Loan portal (https://studentloans.gov/) to apply. They've made it a lot easier to apply for these plans than it has been in the past, like allowing you to import the bulk of your information directly from the IRS. Check it out!
Smart Borrowing and The Future of Repayment
Ever wish you had a magical, time-traveling doctor from the future who showed up during some of life's key moments with handy advice? Of course you did! Follow the adventures of Doctor Winston Jacobs as he comes to the rescue of students in need with sage advice for attempting to create reasonable, manageable student loan repayments.
About the Series: These days, many students require some form of student loans to fund their education. As a student loan borrower, it’s important to remember that borrowing money is always easier than paying it back! iGrad’s Smart Borrowing and The Future of Repayment video series shows you how even a few simple strategies just may translate into more reasonable and manageable student loan repayments, after choosing a repayment plan. In this episode, we cover smart borrowing strategies to consider before enrollment.
Breaking Down the Repayment Options
The Grace Period
Eventually, there will come the dreaded time when you have to begin repaying your student loans. If you graduate, leave school, or drop below half-time enrollment, you guessed it—you’ll have to start paying back your loans. The good news is you probably will have a grace period, a little reprieve before you must begin repaying your federal student loans. Federal student loans allow for the following grace periods after your Last Date of Attendance:
- 6 months (for Federal Stafford Loans)
- 9 months (for Federal Perkins Loans)
If your parents have a Direct PLUS Loan they borrowed for a dependent undergraduate child, interest will begin to accrue at the time the loan is fully disbursed. A parent borrower may contact the loan servicer to request a deferment while the child is enrolled at least half-time and for an additional six months after the child ceases to be enrolled at least half-time.
Learn How To Access Your Student Loans Here!
If you’re a graduate student and have a Direct PLUS Loan, you may defer repayment while enrolled at least half-time, and (for PLUS loans first disbursed on or after July 1, 2008) for an additional six months after you are no longer enrolled at least half-time.
The Payment Plans
Once it’s time to start paying back your loans, you’ll have a few different options for just how you’ll repay. One size does not have to fit all when it comes to repaying your loans. Note that Parent PLUS loans are not eligible for all the following repayment plans.
You can select from an array of different payment options to choose the one that’s right for you:
1.) Payment in Full
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| The Breakdown: |
| You may pay your loan in full, at any time, without penalty. |
2.) Standard Repayment
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| The Breakdown: |
- Pay a fixed amount each month until loans are paid in full
- Monthly payments will be at least $50
- Up to 10 years to repay (or up to 30 years on a consolidation loan)
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| Who’s It For? |
| If you’re looking to pay off your loans quickly, this may be the plan for you. You’ll save money over the long-term by paying less interest, but your monthly payments will likely be higher. Remember, you’ll have no more than ten years to repay. |
3.) Extended Repayment
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| The Breakdown: |
- Pay a fixed or graduated monthly amount until loans are paid in full
- Must have more than $30,000 in outstanding federal loans
- Up to 25 years to repay
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| Who’s It For? |
| If you’re looking to control your monthly student loan payments, this may be the plan for you. You’ll ultimately pay more over the long-term, because you’ll be paying more interest over the 25-year plan, but your monthly payments will likely be smaller. Borrowers considering Extended Repayment should also consider available income-driven repayment options. |
4.) Graduated Repayment
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| The Breakdown: |
- Payments start out low and increase every two years
- Up to 10 years to repay (or up to 30 years on a consolidation loan)
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| Who’s It For? |
| If you expect your income to steadily increase over time, this may be the plan for you. You'll be able to control your monthly payments when your income is less than desirable, although your monthly payment will never be less than the amount of interest that accrues between payments. Even though your monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment. Borrowers considering Graduated Repayment should also consider available income-driven repayment options. |
5.) Pay As You Earn Repayment (PAYE)
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| The Breakdown: |
- Became effective December 21, 2012
- Available only for Direct loans; FFEL loans can be consolidated into Direct Loans
- Monthly payments capped at 10% of discretionary income
- Eligibility requirement: you must be a “new borrower” (you had no balance on a federal loan on October 1, 2007 and you borrowed a federal loan on or after October 1, 2011
- Possibility of loan forgiveness after 10 years of work in a public service job if you've consistently been repaying and meet certain other requirements
- At the end of 20 years, any remaining balance on the loan will be forgiven (with the remaining balance being taxable as income under current law)
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| Who’s It For? |
| If you'd like to make monthly payments based on your income, and you are a “new borrower”, this may be the plan for you. Additionally, if you plan on working in public service, a the PAYE plan may offer the possibility of loan forgiveness. Download this PAYE Fact Sheet for more info! |
6.) Income Based Repayment (IBR)
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| The Breakdown: |
- Became effective July 1, 2009
- Monthly payments capped at 15% of discretionary income
- Eligibility requirement: your monthly repayment amount under IBR must be less than the monthly amount calculated under a 10-year standard repayment plan
- Possibility of loan forgiveness after 10 years of work in a public service job if you've consistently been repaying and meet certain other requirements
- At the end of 25 years, any remaining balance on the loan will be forgiven (with the remaining balance being taxable as income under current law)
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| Who’s It For? |
| If you’d like to make monthly payments based on your income and don't qualify for the Pay As You Earn (PAYE) plan, this may be the plan for you. Additionally, the IBR plan may offer the possibility of loan forgiveness. Download this IBR Fact Sheet for more info! |
7.) Income Contingent Repayment (ICR)
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| The Breakdown: |
- Available only for Direct Loans
- Monthly payments calculated each year based on your family size and adjusted gross income (AGI), plus your spouse's income if you're married
- At the end of 25 years, any remaining balance on the loan will be forgiven (with the remaining balance being taxable as income under current law)
- Up to 25 years to repay
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| Who’s It For? |
| If you’d like to base the size of your monthly Direct Loan payments on the size of your income and family, this may be the plan for you, however, IBR and PAYE may be more affordable. The ICR plan also offers the possibility of having your loans forgiven after 25 years if you meet specific conditions. |
8.) Income Sensitive Repayment
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| The Breakdown: |
- Available only for FFEL loans
- Monthly payments based on your annual income
- Up to 10 years to repay
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| Who’s It For? |
| If you’d like to base the size of your monthly FFEL Loan payments on the size of your income, this may be the plan for you. Keep in mind that this plan is tailored to individuals who’d like to pay off their FFEL loans within 10 years. |
Compare Repayment Plans Side-by-Side
Use these student loan payment calculators to calculate potential repayments:
Having Trouble Repaying? There's Help!
If you’re having trouble repaying your loans, there can be help available! Contact your loan servicer as soon as possible to determine the best way for you to move forward.
(CLICK HERE for a complete list of LOAN SERVICERS for federally held loans made through the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Family Education Loan (FFEL) Program.)
Among the helpful resources available to you are:
- Loan consolidation: you can combine your student loans into a single loan; learn more about the pros and cons.
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| Download Federal Forms For Consolidation, Forbearance, & Deferment |
Changing repayment plans: you can switch from one plan to another once per year, as long as the maximum term of your new plan is longer than the time period in which you have already been repaying your loans.
- Deferment: under certain conditions, deferment allows you to temporarily stop making payments on your student loans.
- Forbearance: if you do not qualify for deferment, under certain conditions, forbearance allows you to temporarily stop making payments, extend your repayment time, or make smaller payments on your student loans; however, interest does continue to accrue.
Any and all resources available should be used in an effort to continue repaying your loans and avoiding that one little dreaded word – default.
Don't Default!
Default is defined as the situation you enter when you fail to make your loan payments over time. Several institutions can take action to recover the money that you owe, including your school, your loan guarantor, and the federal government (among others).
Here are just a few of the disastrous consequences of default, as cited by the Department of Education:
- National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house.
- You may be ineligible for additional federal student aid if you decide to return to school.
- Loan payments can be deducted from your paycheck.
- State and federal income tax refunds can be withheld and applied toward the amount you owe.
- You may have to pay late fees and collection costs on top of what you already owe.
- You can be sued.
Don’t default! By applying for all available aid, borrowing responsibly, and being aware of all the payment plans and resources available to you, you’ll put yourself in a great position to repay the student loan money you invested in your education.
Student Loan Repayment FAQ
Taking out student loans to pay for college is a great way to finance your education—if you borrow smart. The best way to be a smart borrower is to be informed about all aspects of your student loans, especially repayment. If you aren’t sure about something regarding your loans you should always clarify by asking a reliable source; your loan servicer is usually the best place to direct your questions. In addition to contacting your loan servicer for help, this list of the most common FAQ on student loan repayment may be able to shed some light so you can be armed with the information you need to borrow smart.
Student Loan Payment Questions
You will find answers to the following questions (Click on a question in the list below to jump to an individual answer or scroll through to read all):
When do I start repaying my loans?
Your first payment will be due when your grace period ends, which for Stafford, Direct Subsidized and Unsubsidized loans is 6 months after you graduate, withdraw or drop below half-time enrollment.
IMPORTANT NOTE: It is your responsibility to know when and where to send your payments—do not wait to receive a payment notice or statement to make your payment. If you wait for your loan servicer to contact you first, you may already have missed a payment.
If you do not know when and where to send your payment, visit the National Student Loan Data System (NSLDS), the central database for all federal student loan information.
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What if I can’t afford to make my payments?
If you cannot afford your payments, contact your loan servicer. Federal student loans offer several affordable options to help you repay your loans. Contact your loan servicer to discuss your situation while you still have options. If you default on your loans these options are no longer available to you. Many times, they can help you find a solution that works for you.
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Where can I get a complete summary of my loans?
If you know who your loan servicer is, you can contact them to receive a personal loan statement. Most loan servicers offer online access to loan information.
If you are unsure about who your loan servicer is, visit the National Student Loan Data System (NSLDS), which is the centralized database for federal student loan information. If you have private or state loans, you will need to locate your promissory note for those loans or call your school for more information. Once you access NSLDS you will be able to get information on all your federal student loans and contact information for your loan servicer. Some borrowers have more than one loan servicer.
If you have private, state or institutional (school) loans, you will need to locate your promissory note for those loans or call your school for more information.
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What is the difference between subsidized and unsubsidized Stafford loans?
With subsidized loans, the federal government pays the interest on the loans while you are in school, during your grace period*, during any authorized periods of deferment and in certain situations during repayment.
In the case of unsubsidized loans, you are responsible to pay all of the interest that accrues. You have the choice of paying the interest or allowing the interest to accumulate until you enter repayment.
*The federal government does not pay the interest during the grace period for Direct Subsidized loans disbursed between July 1, 2012, and July 1, 2014.
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What’s a deferment?
A deferment is a period of time during which your loan servicer allows you to postpone your monthly payments. Deferments are only granted under specific circumstances, such as unemployment or returning to school. Contact your loan servicer to see if you qualify for a deferment.
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What’s a forbearance?
A forbearance is a period of time during which your loan servicer agrees to temporarily postpone or reduce your loan payments. A forbearance is a good option if you are experiencing short-term financial difficulties and do not qualify for a deferment. Even though your payments are postponed or reduced, you will still be responsible for paying the interest that accrues on your loans, even on subsidized loans, during the forbearance. If you do not make interest payments during your forbearance, the amount you owe will increase.
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Can I pay all or part of my loans before payments are due (prepay)?
Yes, you may prepay your federal student loans in part or in full at any time without any prepayment penalty, regardless of your repayment plan. If you can afford it, prepaying your loans is a good idea because it helps reduce the total cost of paying back the loans.
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I’ve heard that being late on my student loan payments will affect my credit. How?
You are building a credit score by repaying your federal student loans. Your credit score is based on your financial history—loans you have, amounts you owe, on-time payments, etc. Credit scores can vary depending on the source of your information, but one thing is certain: if you are consistently late on your student loan payments, this will be reflected on your credit report. Missing payments may lower your overall credit score making it difficult for you to get other loans such as a car loan or a mortgage. Get into the habit of paying your student loans on time every month. You can track your credit score to see how your payments reflect this number.
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What is a credit score, and why does it matter to me?
A credit score is a number generally between 300 and 850 that summarizes how responsible a person is with debt. So, why does a credit score matter?
Banks, creditors and others use the credit score to predict a person’s future success of repaying borrowed money. The lower the score, the worse your credit history is and the harder it is to obtain loans for things like a car or a home. A low score can also result in creditors charging you a higher interest rate on loans and credit cards, which will increase the amount you have to repay. In some cases, a low score can also hinder your eligibility for employment.
To arrive at a single score, a credit bureau assigns numerical values to specific pieces of a person’s financial information, such as bankruptcy filings, outstanding debt, late payments, the number of inquiries on your credit history, the number of open accounts, etc. These values are put through a series of mathematical calculations to produce a single number—the credit score.
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What's the difference between delinquency and default?
Delinquency occurs when your loan payment is late (also known as past due). If you are delinquent on your loans, there are several options available to you to help you get back on track and avoid the consequences of delinquent payment. Contact your loan servicer to learn more. They will make sure you have an accurate understanding of your delinquency and inform you of the best course of action.
Default can occur when your loans are delinquent for 270 consecutive days or more. Defaulting on a loan has long-lasting and severe consequences, leaving you with few options to repair the damage. Default stays on your credit report for up to seven years and can prevent you from obtaining loans to purchase a car or buy a house.
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Can I lower my monthly payment to an amount that works better for my budget?
As long as you have not defaulted on your student loans, you may have options to change your payment plan. To switch payment plans, you'll need to contact your loan servicer. If you are behind on your payments, contact your loan servicer; they are here to help you.
Loan Repayment Assistance Programs and Loan Forgiveness
In this clip from our Best Student Loan Repayment Strategies webinar with student loan expert Heather Jarvis, we discuss the assistance programs available to students who are experiencing difficulty with their loan repayment, as well as loan forgiveness options such as public service loan forgiveness and income-driven loan repayment plan forgiveness.
Oh No! My Student Loans Are Due
Education! Whether you took a few classes, got a certification, or clawed your way to a degree, you’re done! You are no longer a student. There’s no more campus life or online classes, and your time is now your own. Having gone back to a “normal” life of family, work, and other obligations, you begin to relax with the ordinary ebb and flow of it all. Time slowly passes, and then “it” happens.
One day when you least expect it, you wake up in a cold sweat and realize the unthinkable: “My student loans are due!”
Get Rid of Repayment Panic
Does this sound familiar? If it doesn’t, alas, you are one of the chosen few who have planned repayment on your student loans from your first day of class. You marked a huge red X on that day and you, my friend, are prepared. For the rest of us, it can be sheer panic! We’re not sure who has our loans, how much they are and what the monthly payment is. By some coincidence, if you do know who your loan servicer is, are you sure it’s the only one, or is there another servicer lurking around the corner? It’s as if you can feel the icy cold grip of fear and confusion sending chills down your spine. Ah, but do not fear! That big ball of confusion you feel can quickly dissipate.
To give you some background, you need to know that your federal loans were issued by the Department of Education (ED) or a private lender through the guaranteed loan program. Second, while ED and lenders try to keep loans with one loan servicer, it’s possible that you may have loans with more than just one. You may be expecting a bill from one servicer and not realize you have loans with another servicer. What if that other servicer is showing you past due? How would you know? What could you do to find out?
Your Student Loan Repayment Solution: NSLDS
Great news! There is a solution to crawling out of the unknown and into the light. That solution is the National Student Loan Data System. You may be scratching your head and wondering, “The National what?” Yes, it’s the National Student Loan Data System, more commonly referred to as NSLDS.
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NSLDS is the central database for student aid from the U.S. Department of Education. As a current or former student, the main benefit of using NSLDS is that you can look up information about your federal student loans. This includes loan amounts, outstanding principal balance, interest rates, loan servicer and contact information, and your loan status.
How to Access NSLDS
You can access this site at any time as it is available 24 hours a day, 7 days a week. Another benefit is it tracks your student loans through their entire life cycle, from aid approval to closure. This is also a great tool to use if you do have more than one student loan with more than one servicer, and if you are thinking about loan consolidation.
The information you will need to access the site (www.nslds.ed.gov) is your Social Security number, the first two letters of your last name, your date of birth and your personal identification number (PIN). If you’re having trouble remembering your PIN, you can go to www.pin.ed.gov. When you’re taking a peek at this site, if you have any questions, you can also contact the Federal Student Aid Information Center at 1-800-730-8913. They are available from 8 a.m. to midnight (Eastern Time), Monday through Friday, and 9 a.m. to 6 p.m. (Eastern Time), on Saturday.
Having access to this site is like making it to the light at the end of a very long tunnel. It can give you the information you need to navigate murky waters to a clear cut path in the world of student loan repayment. Remember, student loans can be confusing, unclear and generally make you want to pull your hair out. However, by knowing what resources are available, students can move toward effectively managing their student loans for the future!
To learn more about student loan repayment, here are some helpful iGrad links:
How to Access Your Student Loans and Grants on NSLDS (Video)
Student Loan Repayment: What Are My Repayment Options? (Video)
Student Loan Repayment Plans: Choosing a Plan
Your Guide to Successful Student Loan Repayment Pt. 1
Learn how preparing in advance and having a game plan regarding your student loans can make a big difference when it comes time to begin repayment. Listen to testimonials of other students, how they handled their situations, and learn how to better understand your rights and responsibilities as a borrower.
Your Guide to Successful Student Loan Repayment Pt. 2
Find out what to do once your student loan repayment starts. Once you leave school and are required to begin repayment of your loan, it's important to understand the options available to you, prepare for unexpected situations, and know exactly who to contact should you have any questions or problems.
