Loan Repayment Options

Loan Simulator helps you make decisions about your student loans. Use it to find a repayment plan that meets your needs and goals or to decide whether to consolidate.

With the Standard Repayment plan, the student will pay a fixed amount each month until their loans are paid in full.  Monthly payments will be at least $50, and the student will have up to 10 years to repay Federal loans.

The standard plan is recommended if a student can handle higher monthly payments because they will repay their loans more quickly. The monthly payment under the standard plan may be higher than it would be under the other plans but loans will be repaid in the shortest time with the least interest.

To be eligible for the Extended Repayment plan, a student must have more than $30,000 in Direct Loan debt and must not have an outstanding balance on a Direct Loan as of October 7, 1998.  Under the extended plan a student has 25 years for repayment and two payment options: fixed or graduated.  Fixed payments are the same amount each month, as with the standard plan, while graduated payments start low and increase every two years, as with the graduated plan below.

This is recommended if a student needs to make smaller monthly payments.  Because the repayment period will be 25 years, your monthly payments will be less than with the standard plan.  However, the student may pay more in interest because it is taking longer to repay the loans.  Remember that the longer loans are in repayment, the more interest the student will pay.

With the Graduated Repayment plan payments start out low and increase every two years.  The length of the repayment period will be up to ten years.  If a student expects their income to increase steadily over time, this plan may be a good choice. Monthly payments will never be less than the amount of interest that accrues between payments.  Although the monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment.

The Income Contingent Repayment plan gives a student the flexibility to meet Direct Loan obligations without causing undue financial hardship.  Each year, monthly payments will be calculated on the basis of adjusted gross income (AGI, plus spouse's income if the student married), family size, and the total amount of Direct Loans.  Under the ICR plan the student will pay each month the lessor of:

1. the amount the student would pay if they repaid their loan in 12 years multiplied by an income percentage factor that varies with the student’s annual income, or
2. 20% of the student’s monthly discretionary income*.

If the payments are not large enough to cover the interest that has accumulated on Federal loans, the unpaid amount will be capitalized once each year.  However, capitalization will not exceed 10 percent of the original amount owed when the student entered repayment.  Interest will continue to accumulate but will no longer be capitalized.

The maximum repayment period is 25 years.  If the student has not fully repaid their loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged.  The student may, however, have to pay taxes on the amount that is discharged.

Under the Income-based Repayment plan the required monthly payment will be based on income during any period when the student has a partial financial hardship. The maximum monthly payments will be 15 percent of discretionary income,the difference between adjusted gross income and 150 percent of the poverty guideline for the student’s family size and state of residence (other conditions apply). Monthly payments will be lower than payments under the 10-year standard plan but the student will pay more interest under this plan. If the student has not repaid their loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on their loan will be forgiven.

 Under the Pay As You Earn Repayment plan the required monthly payment will be based on income during any period when you have a partial financial hardship. The student must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011 to qualify for this plan. Maximum monthly payments will be 10 percent of discretionary income, the difference between adjusted gross income and 150 percent of the poverty guideline for the student’s family size and state of residence (other conditions apply). Monthly payments will be lower than payments under the 10-year standard plan but the student will pay more interest under this plan. If the student has not repaid their loan in full after they have made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on their loan will be forgiven.

A student can receive a Deferment for certain defined periods.  A deferment is a temporary suspension of loan payments for specific situations such as re-enrollment in school, unemployment, or economic hardship.  A student will not have to pay interest on the loan during deferment if they have a subsidized FFEL, Direct Stafford Loan or a Federal Perkins Loan.  If the student has an unsubsidized FFEL or Direct Stafford Loan, they responsible for the interest during deferment.  If the student does not pay the interest as it accrues (accumulates), it will be capitalized (added to the loan principal), and the amount the student will have to pay in the future will be higher.  A student has to apply for a deferment with their loan servicer, and the student must continue to make payments until they have been notified that their deferment has been granted.  Otherwise, the student could become delinquent or go into default.

If a student is unable to make their scheduled loan payments, but does not qualify for a deferment, their loan servicer may be able to grant the student a Forbearance. With forbearance, the student may be able to stop making payments or reduce their monthly payment for up to 12 months at a time for up to 3 years. Interest will continue to accrue on subsidized and unsubsidized loans (including all PLUS loans). A student applies with their loan servicer for forbearance, and must continue to make payments until they have been notified a forbearance has been granted.

Default occurs when a student has not made payments on their student loan(s) for at least 270 days.  When a loan defaults, the student is considered in violation of their loan agreement and their servicer can request immediate payment in full.  Default can have a long lasting, negative effect on your financial standing and credit score.  Once a loan is declared in default, the student is no longer entitled to any deferments or forbearances.  In addition, the student may not receive any additional Title IV Federal student aid.