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Student Loan Repayment Plans: What You Need to Know

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For student loan repayments, the standard term on most federal student loans is 10 years, but that doesn’t work for everyone. And no matter what repayment plan you choose or are assigned when you start repaying your loans, you can always change it. If you have private student loans, you’ll have to check your loan agreement or talk to your lender about what sort of repayment options you have. If you have federal student loans, you have a variety of ways to pay back your student loan debt.

What Happens if I Bungle My Student Loan Repayment?

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

  • 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, home loan or even a credit card. (You can see how your student loans are affecting your credit by looking at two of your credit scores on Credit.com.)
  • 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 are rarely discharged in bankruptcy.

It’s essential that you be serious about making your student loan payments from the get-go; your student loan servicer can tell you what you need to do to change your repayment plan. Repayment terms range from 10 years to 30 years, depending on the amount owed and the repayment plan selected. Keep in mind that your repayment options will depend on the type of loans you have, as well as a variety of other factors.

Here are the plans available to federal student loan borrowers:

  • Standard Repayment: With standard repayment, you pay a fixed amount each month over a 10-year repayment period (up to 30 years if you have a consolidation 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. Your repayment term is up to 10 years (up to 30 years if you have a consolidation loan).
  • Extended Repayment: With extended repayment, you can pay a set or graduated amount each month, but your repayment term is stretched out. An extended repayment term can last up to 25 years. With this payment plan, your monthly payment is lower than it is under the standard repayment plan, but you wind up paying more interest over the life of the loan.
  • Income-Contingent Repayment (ICR): Your monthly payment amount is either 20% of your discretionary income or what you’d pay on a fixed-amount, 12-year repayment plan, based on the income you report on your federal tax return, among other things. As your yearly income rises and falls, so do your student loan payments. If after 20 or 25 years you haven’t paid off the loan, any remaining balance will be forgiven.
  • Income-Based Repayment (IBR): Your monthly payments are 10% or 15% of your discretionary income and are recalculated each year. If after 25 years you haven’t paid off the loan, any remaining balance will be forgiven.
  • Income-Sensitive Repayment: Your annual income determines your monthly payment for a repayment period of up to 15 years.
  • Pay As You Earn (PAYE): Your monthly payments are at most 10% of your discretionary income and are recalculated each year. If after 20 years you haven’t repaid your loans in full, the remaining balance will be forgiven.
  • Revised Pay As You Earn (REPAYE): Your monthly payments are 10% of your discretionary income and are recalculated each year. If after 20 or 25 years you haven’t repaid your loans in full, the remaining balance will be forgiven.

Most federal loans have a grace period of six months after you graduate, leave school or drop below half-time enrollment before you have to start making payments, so you have a bit of time to contemplate which repayment plan may be right for you. Many of the repayment plans can help you make affordable payments while you work toward Public Service Student Loan Forgiveness. It’s also important to know that you may have to pay income taxes on any forgiven loan balances.

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 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 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 through deferment or forbearance.

With deferment, you may have a right to postpone payments under a variety of circumstances. For example, you may defer your loans for up to three years while you’re unemployed or unable to find full-time work. You may also defer your loans for up to three years during a period of economic hardship, such as Peace Corps service. And depending on the type of loans you have, the federal government may pay the interest on your loans 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 for up to 12 months. Unlike a deferment, you are responsible for the interest on the loan during forbearance, even if you have a subsidized loan. Remember, deferment and forbearance are not automatic — you have to request them from your student loan servicer. No matter what sort of repayment program you’re in, be sure to make your loan payments on time until your new repayment structure has been approved. 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.

Christine DiGangi contributed to this article. This article has been updated. It was originally published August 24, 2010.


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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.

    • http://www.credit.com/ Credit.com Credit Experts

      prinnie72 —
      You could contact Joshua Cohen, aka The Student Loan Lawyer (thestudentloanlawyer.com), 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?

    • http://www.credit.com/ Credit.com 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….

    • http://www.Credit.com/ 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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