How do I manage my repayment for student loans after graduation?
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UPDATED: Sep 8, 2011
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For most federal student loans, you will have a grace period after you graduate or drop below half-time status before you are required to begin paying off the balance. For the Perkins Loan, this period is nine months and for the Direct Stafford Loan, it is six months. There is no grace period for the Direct PLUS Loan, so your parents must start paying the loan immediately after you graduate.
Federal student loans offer three different repayment plans for both you and your parents after you graduate:
- Standard Repayment – This option has you pay off your loan within ten years with a $50 minimum monthly payment.
- Extended Repayment – With this plan, you may pay off your loan within 12 to 30 years, reducing the amount for each payment.
- Graduated Repayment – This program allows you to start off with lower monthly payments that then increase over time. This monthly payment has to be at least $25 and equal to or greater than the amount of interest accrued.
For students, there are also three additional repayment options. The Income-Contingent Repayment plan calculates your monthly payments based on your income and the amount of your loans for up to a 25 year period, adjusting the payments annually as your income changes, with a minimum payment of $5. At the conclusion of the 25 year period, any remaining balance on the loan is discharged. This plan is only available for Direct Loans.
The Income Sensitive Repayment plan allows you to pay a percentage of your monthly income as the payment on your loan within a term of ten years. After ten years, the monthly payments may become larger to compensate for the lower payments during this period. This plan is for Federal Family Education Loan Program (FFELP) borrowers – this program no longer provides student loans and has been replaced by the Direct Loan program.
The Income Based Repayment plan, in accordance with the College Cost Reduction and Access Act of 2007, has monthly payments that are a low percentage of your income and family size rather than the amount of money borrowed. This plan is for both FFEL and Direct Loan borrowers.
Often, you will have more than one loan once you have completed your education. While these loans can be paid separately, there is also the option to consolidate all of your loans into a single loan and a single lender. A Direct Consolidation Loan allows you to combine multiple federal loans into a single loan from the U.S. Department of education and, in turn, pay one monthly payment. Your loans are eligible for consolidation after you graduate or drop below half time status. The advantage of consolidation is that it gives the student flexibility in his or her repayment timetable – up to 30 years. However, this option can significantly increase the loan amounts, as taking more time to pay back the loan means accruing more interest. The consolidated loan has a fixed interest rate, which is based on the weighted average of the rates from all your loans and cannot go above 8.25 percent.