Loan Repayment Options

There are four main repayment plans for Federal education loans, consisting of Standard Repayment and three alternatives. Each of the alternatives has a lower monthly payment than Standard Repayment, but this extends the term of the loan and increases the total amount of interest repaid over the lifetime of the loan.

The repayment plans are as follows:  

  • Standard Repayment. Under this plan you will pay a fixed monthly amount for a loan term of up to 10 years. Depending on the amount of the loan, the loan term may be shorter than 10 years. There is a $50 minimum monthly payment.
  • Extended Repayment. This plan is like standard repayment, but allows a loan term of 12 to 30 years, depending on the total amount borrowed. Stretching out the payments over a longer term reduces the size of each payment, but increases the total amount repaid over the lifetime of the loan.
  • Graduated Repayment. Unlike the standard and extended repayment plans, this plan starts off with lower payments, which gradually increase every two years. The loan term is 12 to 30 years, depending on the total amount borrowed. The monthly payment can be no less than 50% and no more than 150% of the monthly payment under the standard repayment plan. The monthly payment must be at least the interest that accrues, and must also be at least $25.
  • Income Contingent Repayment. Payments under the income contingent 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. The loan term is up to 25 years. At the end of 25 years, any remaining balance on the loan will be discharged. The write-off of the remaining balance at the end of 25 years is taxable under current law. There is a $5 minimum monthly payment.

All four plans are available for student loans, but only the first three plans are available for parent loans.

For extended and graduated repayment, the following chart shows how the maximum loan term depends on the amount borrowed.

 

Amount Borrowed Maximum Loan Term
Less than $10,000 12 years
$10,000-$19,999 15 years
$20,000-$39,999 20 years
$40,000-$59,999 25 years
$60,000 or more 30 years

All Federal education loans allow prepayment. For loans that are not in default, any excess payment is applied first to interest and then to principal. However, if the additional payment is greater than one monthly installment, you must include a note with the payment telling the processor whether you want your prepayment to be treated as a reduction in the principal. Otherwise, the government will treat it as though you paid your next payment(s) early, and will delay your next payment due date as appropriate. (It is best to tell them to treat it as a reduction to principal, since this will reduce the amount of interest you will pay over the lifetime of the loan.)

Due to the way the income contingent repayment plan treats interest, it is not advisable to prepay a loan in the income contingent repayment plan.

If you want to switch from one plan to another, you can do so once per year, so long as the maximum loan term for the new plan is longer than the amount of time your loans have already been in repayment. (In other words, if you are in year 26 of a 30-year extended repayment plan, you cannot switch to the income contingent repayment plan and have the remaining balance written off.)

FinAid offers several calculators for evaluating the tradeoffs of different repayment plans.  

  • The Loan Payment Calculator may be used to calculate what your monthly payments would be under the standard and extended repayment plans.
  • The Loan Comparison Calculator is like the loan payment calculator, but allows you to compare three loans side by side.
  • The Income Contingent Repayment Calculator may be used to calculate an estimate of what your monthly payments would be under income contingent repayment plans, and compares the total payments with the standard and extended repayment plans.
  • The Undergraduate Master's and Doctoral student loan advisor calculators provide an estimate of the debt the student can reasonably afford, given the expected starting salary for their field.
  • The Parent Loan Advisor provides parents with an estimate of the amount of educational debt they can afford for their children's education, given their current salary and other debt obligations.
  • The Cost of Interest Capitalization calculates the additional cost over the lifetime of a loan if a student capitalizes the interest of an unsubsidized Stafford loan during the in-school period.
  • There are also other loan calculators in the Calculators section of FinAid, including a Loan Analyzer that does a detailed comparison of the financial impact of various loan features, including loan fees, interest rates, repayment terms, interest capitalization, and prompt payment incentives. 
Updated 11/13/2013 - Content Author rcrumedy