There are several different options when it comes to student loan repayment. It is important for your personal financial health to determine what you can afford to pay when it comes to repayment.
Deferments allow you to temporarily postpone the payment of your loan. One major reason a borrower will seek deferment is if you are returning to school at least half-time. Deferments are not automatic; you must apply and be approved by your lender. During periods of deferment on subsidized Stafford loans, the principal payments are postponed and interest is paid by the federal government. However, you are responsible for interest that accrues on any unsubsidized Stafford loan. Other deferment options may be available, so contact your loan holder for details and to obtain forms.
Level repayment is the most common payment schedule option. Borrowers repay the loan(s) in equal installments over their repayment period. The minimum monthly payment is determined by the amount of the loan and the length of the repayment period. Generally, this option is the most economical method of repayment.
Borrowers making graduated payments begin repaying their loans at a lower payment amount than normal. The amount increases every two years until the balance of the loan is repaid over the length of the repayment period. The amount of interest paid over the life of the loan is higher with this option than with Level repayment.
With an income sensitive repayment schedule, the monthly payment amount is adjusted annually to reflect changes in the borrower’s income, based on the total monthly income and student loan debt. This option may be used for a maximum of five years, when the account will be converted to Level or Graduated repayment.
Borrowers who began borrowing on or after October 7, 1998, and have Federal Family Education Loan Program loans totaling more $30,000 are eligible for extended repayment. Extended repayment can be either a Level or Graduated schedule that is set up for a repayment term of up to 25 years instead of the 10 years. This can result in a much lower payment amount but will also increase the total amount of interest paid over the life of the loan.
Payments under the Income Based repayment plan are based on the borrower’s income and the total amount of debt. Monthly payments are adjusted each year as the borrower’s income changes. Income Based repayment is set up for a repayment term of up to 25 years. At the end of 25 years, any remaining balance on the loan will be discharged. Income-based repayment caps monthly payments at 15% of your monthly discretionary income.
You can find further information on consolidation, a repayment estimator and more from the U.S. Department of Education.