Frugal Fun and Financial Fitness: Student Loan Repayment

For the May graduates, 6 months from graduation is time to start repaying your student loans. The Federal government wants its money back and provides many options for repayment.

First question you need to ask yourself: “Should I consolidate my student loans?

· PRO: Consolidated loans simplifies your loan repayment by centralizing your loans into one bill, providing one payment, and can lower your monthly payment by providing you up to 30 year to repay your student loans.

· CON: You may lose any benefits offered with the original loan. Once you combine your loans into a Direct Consolidation Loan, it’s a done deal and they cannot be unconsolidated.

After you decide if you are going to consolidate your loans or not, you need to choose a repayment plan.

The Federal Student Aid provides all the information you need to know for Federal Student Aid, Work-Study jobs and grants. Listed below is an overview of Direct Loan and FFEL (Federal Family education Loan) Program Loans repayment plans, noting information regarding repayments, deferments and forbearance.

There are many companies out there who want to take your money to enroll you in government plans that you could do yourself. Take caution of offers that seem “too good to be true” --because they probably are.

Overview of Direct Loan and FFEL (Federal Family education Loan) Program Loans Repayment Plans

Repayment Plan	Eligible Loans	Monthly Payments and Time Frames	Quick Comparison
Standard Repayment Plan	Direct subsidized and unsubsidized loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans	Payments are a fixed amount of at least $50 per month. Up to 10 years	You will pay off your loan in a shorter amount of time and you will pay less interest, however your payments could be higher. Consider this plan if you can afford higher payments
Graduated Repayment Plan	Direct subsidized and unsubsidized loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans	Payments are lower at first and then increase, usually ever two years. Up to 10 years	You will pay more for your loans over time than under the 10 year plan. Consider this plan if you expect your income to start off low and then grow over time.
Extended Repayment Plan	Direct subsidized and unsubsidized loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans	Payments may be fixed or graduated. Up to 25 years	Your monthly payments would be lower than the 10-year standard plan Must have at least $30,000 in outstanding Direct Loans OR $30,000 in FFEL Program loans. Direct Loans and FFEL loans must remain separate. You cannot combine Direct Loans and FFEL loans to reach the $30,000 threshold. Must be a “new borrower” as of October 7, 1998 You will pay more interest over a longer period of time than the 10-year plan. Consider if you have over $30,000 in qualified loans and cannot afford the 10-year or graduated repayment plans
Income-Based Repayment Plan (IRP)	Direct subsidized and unsubsidized loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans made to students Consolidation Loans (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents	Your maximum monthly payments will be 15 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply). Your payments change as your income changes. Up to 25 years	You must have a partial financial hardship Your monthly payment will be lower than payments under the 10-year standard plan You will pay more for your loan over time than under the 10-year standard plan If you have not repaid your loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven You may have to pay income tax on any amount that is forgiven.
Pay as your Earn Repayment Plan	Direct subsidized and unsubsidized loans Subsidized and Unsubsidized Federal Stafford Loans All PLUS loans made to students Consolidation Loans (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents	Your maximum monthly payments will be 10 percent of discretionary income; the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply). Your payments change as your income changes. Up to 20 years	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 a partial financial hardship. Your monthly payment will be lower than payments under the 10-year standard plan You will pay more for your loan over time than under the 10-year standard plan If you have not repaid your loan in full after making the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven You may have to pay income tax on any amount that is forgiven.
	Direct Subsidized and Unsubsidized Loans Direct PLUS Loans made to students Direct Consolidation Loans	Payments are calculated each year and are based on your adjusted gross income, family size, and the total amount of your Direct Loans. Your payments change as your income changes. Up to 25 year	You'll pay more for your loan over time than under the 10-year standard plan. If you do not repay your loan after making the equivalent of 25 years of qualifying monthly payments, the unpaid portion will be forgiven. You may have to pay income tax on the amount that is forgiven.
Income Sensitive Repayment Plan	Direct Subsidized and Unsubsidized Federal Stafford Loans FFEL PLUS Loans FFEL Consolidation Loans	Your monthly payment is based on annual income. Your payments change as your income changes. Up to 10 years	You'll 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.