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Repayment Options for Student Loans

Advertiser Disclosure by Lucy Lazarony

Repayment Options for Student Loans

Attention, Heavily-indebted college grads: The U.S. government, which so generously supported your pursuit of higher education through its federal student loan program, is serious about your paying that money back.

If you should neglect your student loan payments for more than 270 days and your loan goes into default, the federal government will:

  • Deduct your loan payments from your paycheck.
  • Withhold any state and federal income tax refunds and apply the refunds to the amount you owe.
  • Notify the credit reporting agencies about your default, thereby damaging your credit score and making it difficult for you to qualify for a car loan or home loan or even a credit card.
  • Charge you late fees and collection costs on top of the amount you owe.
  • Deny you federal student aid if you decide to go back to college.
  • Sue you in court for the outstanding balance plus attorneys’ fees and court costs.

If you think filing for bankruptcy will make your big, bad federal student loan debt go away, think again. Federal student loans cannot be discharged in bankruptcy.

You can expect the federal government to continue to collect on your student loans for at least 25 years. It’s essential that you be serious about making your student loan payments from the get-go. Your best bet is to pick a student loan repayment plan that fits your budget and stick with it “through every financial high and low” until your federal education debt is paid in full. With federal Stafford loans, you have four key repayment options: standard repayment, extended repayment, graduated repayment, and income-based repayment. Repayment terms range from 10 years to 25 years depending on the amount owed and the repayment plan selected.

  • Standard repayment: With standard repayment, you pay a set amount each month over a 10-year repayment period.
  • Extended repayment: With extended repayment, you pay a set amount each month but your repayment term is stretched out. An extended repayment can last anywhere from 12 to 25 years. With this payment plan, your monthly payment is lower but you wind up paying more interest over the life of the loan.
  • Graduated repayment: With graduated repayment, you begin with small payments and work your way up to larger payments during the course of your repayment period. Your payment amount usually increases every two years.
  • Income-sensitive or income-contingent: With these repayment plans, the monthly payment amount is based on the income you report on your federal tax return. As your yearly income rises and falls, so do your student loan payments.

The income-sensitive plan is available for Stafford loans in the Federal Family Education Loan program (FFEL) and the income-contingent plan is available for loans in the William D. Ford Federal Direct Loan Program (DL). In the FFEL program, the money is borrowed from a bank or credit union or other lender participating in the program. With direct loans, the money is borrowed directly from the federal government and borrowers make repayments to the federal government. You won’t need to make your first payment on federal Stafford loans until six months after you graduate or leave school, so you have a bit of time to contemplate which repayment plan may be right for you. (And if you drop below half-time enrollment, you also have six months before you’ll need to begin payments on federal Stafford loans.) Calculators from the U.S. Department of Education let you compare monthly loan payments on each type of repayment plan. Study your options carefully.

You may be able to nudge down the interest rate on your student loan by agreeing to pay your loans online or by allowing payments to be automatically deducted each month from your checking account or savings account. Setting up an automatic payment is a quick and convenient way to pay your student loans. You won’t have to write a loan check every month and your payment will always be on-time. Just make sure there is enough money in your account to cover the payment each and every month.

If you ever find yourself struggling to meet your federal student loan payments because of unemployment or economic hardship, contact your lender and ask about options for temporarily postponing or reducing your payments. With deferment, you may have a right to postpone payments on your loan by getting a deferment. A deferment is a temporary suspension of loan payments because of a specific circumstance such as unemployment or financial hardship. The federal government pays the interest rate on a subsidized loan while payments are deferred. The government will not pay the interest on an unsubsidized loan while payments are deferred. If you’re not eligible for a deferment, you may still be able to receive forbearance. Forbearance is a temporary postponement or reduction of loan payments. Unlike a deferment, you are responsible for the interest on the loan during forbearance. Every Stafford loan borrower is entitled to deferment due to economic hardship or unemployment for up to three years, as long as the borrower meets eligibility requirements for these deferments. Lenders of Stafford loans may also offer forbearance for up to 12 months at a time for up to three years. You’ll lose these benefits if your student loan falls into default, so be sure to contact your lender at the first signs of financial trouble.

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  • Max Pichardo

    If you default on your loans make sure you research your outstanding loans, and find out how many loans you have, and how much in total your loans amount too. You need to do this before even attempting to reach the agency handling your loan accounts. Agencies only know enough to persuade and intimidate you to folk up money to repay. Repayment is the plan, but make sure you plan out your own plan, and do not allow any agency to push you to repay a lump sum of money, or to intimidate you to pay something right now to lock you in to their tramp. Think, strategically design you payment plan. Make sure you will be able to meet the time frame commitment, and the monthly amount you agree to pay to bring you loans out of default.

    Remember, you are already late and in default. Take your time to plan you game, and make your payments your way, not the agencies way. These agencies feed on your naive state of mind, and they make boats loads of money doing so.

  • prinnie72

    Unfortunately my loan, after 13 years of paying on time religiously, has now gone into default. Without going into all of the gory details, my father wrote a check to pay off in full last year. Without my knowledge, the check was sent back to him due to incorrect pay to party. My father and I no longer have a relationship, so here I am stuck with the $5,000 or so. I can’t afford it and have been so upset, that I made a huge mistake of burying my head in the sand, so to speak, and ignore the threatening calls and letters from the lender. Now, they are forcing my employer to withhold 15% of all my paychecks. This is just killing me. I know that I messed up by hoping it would just go away. Is there anything I can do now that it’s gotten this far? Please help! Thanks.

    • Credit Experts

      prinnie72 —
      You could contact Joshua Cohen, aka The Student Loan Lawyer (, to see what he thinks. But, as you are discovering, unpaid federal student loans can be taken from paychecks, tax returns, etc. We wish we had better news.

  • donald

    These kids should read what they are signing also see all of the problems ex students are having. Try to figure how to get by without a loan or as small as needed. #1 try working and see if you can get some relatives to trust you for a loan.

  • dancingaunt

    What if you are no longer able to work and on disability? what should you do if there is no way for you to payback the loan?

    • Credit Experts

      If it is a federal loan, you may be able to get the loan discharged due to disability.

    • PicMax

      Yes if they are federal loans, you may able to discharge them with enough supporting evidence of your inability to work. However, if they are private student loans I recommend you counsel with an experienced professional. I hate to say this, but Private student loans are evil and are full of K9’s. I recommend to never consider private loans as a solution to fund your education, you are better off working and paying for your own education. Private loans are inconsiderate, lack of compassion, and have no regards for human life. The are only good, till the day you become ill, or if you been in an accident, or for some reason you are unable to work to attend your daily obligations. Then, and only then you will know who is Mr. Private student loan in your life. I would rather be in a coma. LOL

    • Beth S. Texas

      Contact Nelnet. You can find their website on the internet just by searching their name. They helped me as I am disabled now and unable to pay and my loans are now paid through insurance thus no more student loans. Read all conditions of making this decision first. I am very pleaded withthem and couldn’t be happier. Good luck.

  • mister g

    Student loans are a necessary evil for lower and middle class Americans that want to get ahead in life. I owe salliemae (navient) $61K but with interest I will pay $180K at the end of repayment plan. What a great business to be in.

    • Rajadaja

      Dont take 20 years to pay off your loans and it wont cost you so much. When your income increases,increase your payments

      • mister g

        Yes that sounds good and I did that with Sallie Mae in 2004 to realize that my bigger loan payment were being applied towards future interest only and not to principal, I asked why and was told to send check with note stating “apply to principle”. I started writing note and realized that additional payment was only being applied to subsidized loans only and not all the time as indicated on my note. My point is student lenders are in it to make as much interest as possible and will screw borrowers. That’s why it’s a necessary evil for working class.

  • mrsmibarra

    I began having an issue around 2010 when the lender changed the way I could pay online.i consolidated a few years prior and insisted that a small under $1000 dollar and my only unsubsidized loan be left out of the consolidation. I was paying separately online and making additional payments on the small on to knock it out fast, then they changed and would not let me pay separately insisting that it was one loan. As I disputed with them I began taking a series of forbearances and/ or deferments trying unsuccessfully to get the ability to pay separately again. The last time I was granted a deferment answer next thing I knew I was told I was in default and unable to get them to hand over a recording of the last call about the deferment I was told that I would get a wage garnishment notice and could have a hearing. I never got one, but my boss did, I had moved and they had sent it to my old address. I just conceded and let them take the money, which later learned doesn’t count as a payment for credit purposes. I left that job about a year later, and have been working for about 2 years at the same company. This year they seized our joint tax return, also not considered a payment, however it should have been applied to an earlier tax tear debt waiting on processing because of identity theft where someone filed tax returns before I did. I just started sending pheaa checks for payment last month and they are cashing them. Do they have to report my payments to the credit bureaus and how long until they should remove a default status?

  • SK

    how do student loan effect your credit report or future credit? I am current on my student loans, but they are currently in deferment as I have gone back to school. One company calculated those defered loans payment into my debt to income ratio and I was denied credit with them. Is that legal? Also how can I improve credit with these student loans will I’m in school and the deferment period will continue for 2 more years….

    • Gerri Detweiler

      It depends on the lender’s policy. They don’t directly hurt your credit scores because they are in deferment. But a lender can take into account the amount of your monthly payments (in the future) if they are trying to evaluate whether you can afford the new loan.

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  • Meet Our Expert

    lucy_lazarony GravatarLucy Lazarony is a freelance personal finance writer. Her articles have been featured on Bankrate, MoneyRates, MSN Money, and The National Endowment for Financial Education. Prior to freelancing, she worked as a staff writer for Bankrate for seven years. She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American International University in London. She lives in South Florida.
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