Student Loan Repayment Options

Student loan payments usually begin when you graduate, drop below half-time school attendance, or leave school. Grace periods apply to certain types of federal loans. There are also several repayment schemes to choose from, including tying your monthly payment to your income.

For private student loans, you should check with your lender to find out about your repayment options, grace periods, and deadlines. The National Consumer Law Center’s Student Loan Borrower Assistance Project is also a great resource for information on repaying both federal and private loans.

Remember, in general, the longer the repayment term you choose, the less you will pay each month, but the more you will pay overall. That is because you are paying two different costs with your loan: (1) the principal, which is the amount of money you borrowed, and (2) the interest, which is a percent of the principal. The longer you take to pay down your principal, the more you will pay in interest.

For more information on federal loan repayment plans, check out Federal Student Aid’s brochure Repaying Your Loans.

Income-Driven Repayment Plans

If your federal student loan payments are too high for your income, you should consider an income-driven repayment plan to repay your debts. Under these plans, your monthly student loan payment is set at an amount that is supposed to be affordable based on your salary and family size.

There are four types of income-driven repayment plans:

• Revised Pay as You Earn Repayment Plan (REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)

Consider your repayment option carefully, and review repayment options when your financial situation changes to make sure that you are choosing the appropriate option. Also consider any loan forgiveness program you hope to qualify for, because you may need to be on a specific type of payment plan. Federal Student Aid provides more detailed information on income-driven repayment plans here.