Choosing a Federal Repayment Plan
How to select the right plan for to pay for your college loans.
Paying back your college financial aid can seem daunting, but the federal government offers a variety of repayment plans for student loans. Just as there is a variety of federal aid available to help a college student pay for college, there are plans that cater to the needs of different types of students.
How do you choose the right plan for you? That depends on how much money you’ll be able to pay once you graduate from your college or university, how long you want to be paying back your school loan and additional factors, such as whether you expect your salary to increase steadily and quickly throughout your career.
Here is information about the main federal aid repayment plans you will encounter when it’s time to pay for your college education. Familiarize yourself with the benefits and drawbacks to help you select the plan that’s best for you.
Standard Repayment Plan:
This federal repayment plan divides the college money you borrowed into equal monthly payments for up to 10 years. The length of your repayment will depend on the amount of your loan. Because the length of time for your repayment is less on this loan than on many others, you’ll end up paying back less college money overall. However, your monthly payments will be higher than they would be under a longer plan.
Extended Repayment Plan:
Under this plan, you can pay off your college loans for up to 25 years with a fixed annual or graduated repayment. Your monthly payment will be lower than if you were on a plan in which you paid back your loan in less time; however, you will pay back more money in the long run.
Graduated Repayment Plan:
People who choose this plan to repay their financial aid for college expect their income to increase steadily. This plan starts with lower payments that increase every two years and can be repaid in up to 10 years.
Income-Based Repayment (IBR):
This plan caps your required college money payment based on your income and the size of your family. This number can be adjusted annually to reflect your personal situation. An additional benefit of this plan is that if you make your payments for 25 years and meet additional loan requirements, the remaining balance on your loan after the 25 years may be canceled.
Income Contingent Repayment (ICR):
This plan is offered for Direct Loans only and adjusts your monthly payments based on factors such as your adjusted gross income, family size and the amount of college money you owe. It can be repaid in up to 25 years.
Income-Sensitive Repayment Plan:
Offered for FFEL Loans only, this plan sets your monthly payments based on your annual income; your monthly payments go up or down in accordance with your income increases and decreases. This federal aid can be repaid in up to 10 years.
Repayment Plan Tips & Tactics
- If you change your mind about the repayment plan you chose for your college program, you may be able to switch plans. Contact your lender to find out what options you have to for changing how you repay your money for college.
- Federal aid includes a grace period once you complete your college degree, end your college education or start studying part-time or less. Make the most of this time by creating a budget, saving as much money as you can and otherwise preparing to start repaying your money for college.
- Considering a Direct Loan with a standard, extended or graduated payment plan? Compare costs of each type of college financial aid with the government’s repayment calculator.
- If you do not qualify for federal aid, you may always apply for loans from a private institution. Typically, private loans have a higher interest rate and repayment terms than Federal loans. To get the best possible rates, make sure that you compare student loans when applying for financial aid.
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