Selection of the appropriate repayment plan for Direct Loans is essential, and saves money in the long run.
Payment plans should be selected during the grace period. Borrowers who do not select a payment plan are automatically enrolled in the Standard (10 Year) Repayment Plan. To enroll in a different repayment plan, borrowers should contact their loans servicer. Loan servicer information can be found via the National Student Loan Data System.
A borrower is automatically enrolled in the Standard Repayment Plan (SRP) if he/she does not elect a different plan. The SRP allows a borrower to repay a loan over a maximum of ten years, making monthly payments of a fixed amount until the loan is paid in full. Because the loan is repaid in the shortest amount of time, the SRP offers the lowest, overall cost of loan repayment. As a result of the short time frame for repayment, monthly payments under the SRP are higher than under other plans, but borrowers may pay the least amount of total interest.
To be eligible for the Extended Repayment Plan (ERP), a borrower must have more than $30,000 in Direct Loan debt and must not have an outstanding balance on a Direct Loan as of October 7, 1998. The ERP allows a borrower to repay a loan over a maximum of 25 years, making monthly payments of a fixed amount until the loan is paid in full (for the ERP graduated payment option, see “Graduated Repayment Plan” below). The fixed monthly payment is lower under the ERP than under the SRP; however, the borrower ultimately pays more for the loan because of the interest that accrues during the longer repayment period.
Under the Graduated Repayment Plan (GRP) the monthly payment amount increases every two years throughout the repayment period. Monthly payments in the beginning of the repayment period are typically lower under the GRP than under the SRP; however, monthly payments at the end of the GRP repayment period are typically higher than under the SRP. The GRP repayment period is 10 years; however, borrowers with high loan balances may be eligible for a GRP with a 25 year repayment period. Finally, under the GRP, the monthly payment is never less than the interest that has accrued between payments, and no single payment is more than three times greater than any other payment.
The Income Based Repayment Plan (IBR) caps a borrower’s required monthly loan payment at an amount intended to be affordable based on the borrower’s income and family size. The IBR is available for borrowers who experience a partial financial hardship after graduation. The primary benefit of IBR comes in the form of 25-year loan cancellation. A borrower who makes 25 years of qualified payments under IBR may be eligible for cancellation of the remaining amount of their loan.
The Department of Education offers an IBR calculator that can help borrowers determine eligibility and calculate an initial monthly payment.
Under the IBR, a borrower’s monthly payment is less than the required monthly payment under the SRP. Although lower monthly payments may benefit a borrower, lower payments may result in a longer repayment period and additional accrued interest. For IBR borrowers whose monthly payment amount is less than the monthly accrued interest on the loan, the federal government offers an Interest Payment Benefit. Under this benefit, the federal government pays the unpaid, accrued interest on Direct Subsidized loans for up to three consecutive years from the beginning of IBR.
Pay As You Earn Plan (PAYE)
Under this plan, eligible loans are Direct Subsidized and Unsubsidized loans, Direct Graduate PLUS loans, Direct Consolidation loans from students not parents. With this plan, your maximum monthly payments will be 10 percent of discretionary income and the payment will change as your income changes. A borrower will have up to 20 years to repay.
You must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You must have financial hardship. Your monthly payments will be lower than payments under the 10-year standard repayment plan. You’ll pay more for your loan over time than you would under the 10-year standard plan. Your outstanding loan will be forgiven, if you have not repaid your loan in full after you have made the equivalent of 20 years of qualifying monthly payments. However, you may have to pay income tax on any amount that is forgiven.
The Income Contingent Repayment Plan (ICR) caps the required monthly loan payment at 20% of all earnings above the federal poverty level. Monthly payments are recalculated annually, based on the borrower’s adjusted gross income (AGI, including spouse's income for married borrowers), family size, and total Direct Loan debt. The Department of Education offers an ICR calculator that can help borrowers determine eligibility and calculate an initial monthly payment.
The maximum repayment period for the ICR is 25 years. If, after 25 years of payments, a borrower has not fully repaid his/her loans, the unpaid portion of the loan is forgiven. It is important to note that time spent in deferment or forbearance does not count toward the 25 year period and that a borrower may be required to pay taxes on the amount the loan that is forgiven.
Income-Sensitive Repayment Plan (ISR)
Eligible loans include Federal Stafford Subsidized and Unsubsidized loans, FFEL PLUS loans and FFEL Consolidation loans. Your monthly payment is based on annual income. Payments will change as your income changes and you have up to 10 years to repay. You will pay more for your loan over time than you would under the 10-year standard plan. Each lender’s formula for determining the monthly payment amount under this plan can vary.
Federal Student Loan Consolidation Program
Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans into a new loan.
The process of consolidation offers several advantages, including:
- Direct PLUS Loans may be consolidated with other eligible student loans into a single consolidation loan after graduation;
- all loans are held by one bank or agency, creating one, single, monthly payment for the borrower and making communication with the lender/servicer more convenient;
- consolidation loans offer many of the same repayment plans as federal Direct Loans (SRP, ERP, ICR, IBR) and, by consolidating, borrowers may have the opportunity to change a previously selected repayment plan;
- consolidation may renew exhausted deferment options on original loans;
- the minimum required monthly payment on a consolidation loan may be lower than the combined payments charged on multiple federal loans;
- borrowers retain their subsidy benefits on subsidized loans that are consolidated; and
- consolidation reduces the likelihood of delinquency and default, since payments are more manageable.
There may also be some disadvantages to consolidation, including:
- if consolidation extends the repayment period, the overall cost of the loan will increase;
- borrowers who consolidate Direct Subsidized/Unsubsidized Loans while those loans are in an in-school status, will lose the grace period on those loans; and
- borrowers who consolidate Direct PLUS Loans with a first disbursement date of July 1, 2008 or later will lose the six month possible post-enrollment deferment period on those loans.
For more information about the Loan Consolidation Program contact your lender or the current holder of your loan(s) or to apply for a Direct Consolidation Loan online or by phone (l 1-800-557-7392).
AOMA Graduates who become licensed acupuncturists may be eligible for partial loan forgiveness through two federal programs: the Public Service Loan Forgiveness program, and the Indian Health Service Loan Repayment program.
Public Service Loan Forgiveness
Borrowers who work in public service may be eligible to have the remaining balance of their loans forgiven after 10 years of payments. In order to qualify, borrowers must be employed full-time in a public service job (e.g. a public school or college, a registered non-profit organization, or a public family service agency) and make 120 separate monthly payments after October 1, 2007. Each of these payments must be made for the full scheduled installment amount, and must be posted within 15 days of the due date. Borrowers must be enrolled in the Income Based Repayment (IBR) Plan, the Income Contingent Repayment Plan (ICR), the Standard Repayment Plan (SRP) with a 10-year repayment period, or any other Direct Loan Program repayment plan with payments that are at least equal to the monthly payment amount required under the SRP with a 10-year repayment period. More information about Public Service Loan Forgiveness.
The Indian Health Service Loan Repayment Program (IHS LRP)
The IHS LRP was created to support the mission of the Indian Health Service by supporting health professionals who offer services on Indian health program sites. The IHS LRP awards up to $20,000 per year for the repayment of qualified student loans in exchange for an initial two-year service obligation to practice full-time at an Indian health program site. Eligibility varies. For more information, please visit the IHS LRP website.
Repayment: How to Manage Your Student Loans
To obtain resources, tools, repayment information and financial awareness counseling log sign in at https://studentloans.gov/myDirectLoan/index.action. The financial awareness counseling tool includes online modules to help a borrower budget and estimate repayment amounts.
The following are some repayment plan calculators to assist you in gauging in borrowing responsibly. Remember, to estimate your monthly payments, you must know your loan interest rate. The NSLDS Access allows you to view your current loan interest rate.
Income-Based Repayment Calculator
Pay as You Earn Repayment Calculator
Income-Contingent Repayment Calculator
Direct Loan Repayment Calculators
Poverty Guidelines for 2013-2014