Loan repayment options

Federal Stafford- and PLUS-loan borrowers can choose from several flexible options for paying back their education loans:

 

Level repayment

Typically this is the least expensive option in terms of total interest costs. Also known as the standard repayment plan, most federal education-loan borrowers choose this option. This option provides a fixed monthly payment of at least $50 over a period of up to 10 years.

 

Graduated repayment

Monthly payments start low and increase over time. Graduated repayment may be a good choice for borrowers who currently have limited income but expect higher earnings in the future. Unless borrowers consolidate several federal education loans, the maximum repayment term under this option is 10 years. Total interest costs are higher under this option than with level repayment.

 

Income-sensitive repayment

Payments can be adjusted up or down annually to account for changes in a borrower's income. The minimum payment must be enough to cover accruing interest. The repayment period of 10 years can be extended to 15 years under a special forbearance provision. Total interest costs will be higher with this option than with level repayment.

 

Extended repayment

This relatively new option is available only to borrowers who did not have a balance on a Federal Family Education Loan Program (FFELP) loan as of Oct. 7, 1998, or at the time they received an FFELP loan after Oct. 7, 1998. In addition, extended repayment is available only to borrowers with outstanding education-loan balances of more than $30,000.

 

Under this plan, borrowers may reduce the amount of the monthly payment by spreading payments over a period of up to 25 years. Borrowers may choose to make payments over this extended period under a level or graduated schedule. Because payments are stretched over a longer term, total interest costs will be significantly higher than under the other repayment plans.

 

Deferment and forbearance

Borrowers who are unable to make monthly payments should contact their loan servicer or loan holder as soon as possible. Borrowers may qualify for a deferment, which permits temporarily postponing payment of the loan. Or they may qualify for forbearance, which usually is granted at the discretion of the lender. In granting forbearance, a lender temporarily postpones payments, reduces the amount of payment, or extends the repayment period.

 

Questions?

Sallie Mae: (888) 272-5543 or www.salliemae.com.