Repaying Your School Loans
When it comes to repaying your school loans, you’ll
likely have some repayment options to consider, depending on
the source of the loan and how much you owe.
Federal Loans
If you’re paying back a Stafford
Loan, you will begin paying back the loan within six months
of you graduating, leaving school or dropping below
half-time enrollment.
PLUS loans begin repayment within 60 days after the loan is fully paid out. The repayment periods for Stafford and PLUS Loans can be anywhere from 10 to 25 years, depending on how much you owe and the repayment plan you choose. The federal government offers the following repayment options to you if you started repaying your Stafford Loan on or after July 1, 2006:
Standard Plan: You have a fixed annual repayment amount paid over a fixed period of time, which can’t exceed 10 years. You’ll pay less interest with this plan than with others.
Graduated Plan: This plan offers lower payments at the start, then your payments will gradually increase over time as you have more earning power, usually every two years.
Income-Sensitive Plan: This plan bases your monthly payment on how much money you make. Your payments will vary from year to year depending on your gross monthly income. This payment plan is not offered for PLUS Loans.
Extended Payment Plan: This plan will extend your repayment period up to 25 years if your first federal loan was received on or after 10/7/98 and your loans total more than $30,000.
Let’s say you choose to repay your loan using the Standard Plan, and you decide that 8% of your income will go toward paying off your loan. The chart on the right gives you an example of what your payments, and your total amount paid, might look like.
Perkins Loans - You’ll have nine months after graduating, leaving school or dropping below half-time status to begin paying back a Perkins Loan. Even though a Perkins loan is a federal loan, you will actually be repaying the loan through your college or university and your school, or its lender, will provide you with specific payment options.
Deferred Payment Plan - Under certain circumstances, you may be eligible for a deferred payment plan. This allows you to defer principal and interest payments until graduation. Keep in mind, though, that deferring payments will probably increase your long-term loan costs.
Consolidation - You might also consider consolidating your student loans. Consolidation is a way of simplifying your loan repayment by combining all of your federal student loans into a single fixed-rate loan.
Default - There are always consequences if you fail to uphold your end of any agreement. In the case of your federal loans, there are consequences you should be aware of if your federal loan goes into default, which means you failed to pay back your loan according to the terms you agreed upon.
- The national credit bureaus might be notified of the default, which means it will negatively affect your permanent credit history. You could be ineligible for any future federal aid, should you decide to go back to school.
- Your loan payments might be deducted from your paycheck.
- Your state and federal income tax refunds might be withheld and applied toward the amount of money you owe.
- Your loan could be assigned to a collection agency.
Private Loans - If you have taken out a private loan to pay for your education, your repayment plan will depend on the lender and the amount you owe. Make sure you understand what repayment options are available to you when deciding upon a private student loan.
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