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Understanding Federal Student Loan Repayment Options

In our previous article, we talked about the differences between Federal and Private student loans. One of the key benefits of federal student loan is that they offer a range of repayment plans based on a variety of factors.

While you should discuss options with a student loan counselor, these are just a few of the repayment options available with federal student loans.

Standard Repayment

Most federal loans have a repayment period of ten years (120 months). If your student loans fit within your income, then this is the type of plan you’re currently using.

Consolidation Loan

If you’re carrying multiple student loans, one option you might want to consider is a direct consolidation loan.
This is a federal loan that allows you to combine one or more federal student loans into one new loan. As a result, you will have to make only one payment each month on your federal loans. In some cases, you can also get an extension on the amount of time to pay your loan.

Graduated Repayment

In some careers, you may need to start out making less money with the anticipation of higher income in the future. In this case, where your income is low now, but you expect it to increase steadily over time, graduated repayment may be right for you.

With this plan, payments are lower at first and then increase, usually every two years over the course of a ten-year repayment period.

Extended Repayment

If you’re unable to make your monthly payments, one option may be an extended repayment plan. With this plan, you can pay less each month and make payments for up to 25 years. Keep in mind, because you’re paying over a longer period of time, you will be paying more in interest.

Income-Based Repayment

If your federal student loan payments are high compared to your income, you may want to repay your loans under an income-driven repayment plan. Under this plan, your monthly payments will be ten to fifteen percent of your discretionary income (the difference between your income and 150 percent of the poverty guideline for your family size and state of residence).

Your payments are recalculated each year and are based on your updated income and family size. If you’re married, both your and your spouse’s income or loan debt will be considered. The good news is that any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 or 25 years.

This type of repayment is often ideal for those in public service fields such as public health, education, public interest law services, and emergency management.

Looking for more help understanding and managing your student loans? Schedule an appointment with one of our student loan counselors today or call us at 800-920-2262.

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