Repayment Options

Pre-payment
You may pre-pay all or part of your student loans at any time without penalty. If you send money during a grace or deferment period, it is credited to the principal amount owed. Note that any prepayment would decrease your outstanding balance when calculating eligibility for an Economic Hardship Deferment.
Cancellation
Federal Perkins and Stafford loans have a provision for cancellation in the event of death or total disability (if you have a temporary disability, your loans can be deferred). Should you die or become totally disabled, the unpaid balance and any accrued interest on your Federal Stafford and Federal Perkins loans will be canceled.
Variable Interest Rate Charged on All Federal Stafford Loans
All Stafford loans have a variable interest rate. The variable interest rate is set each year on July 1.
Combining Federal Stafford and Federal Direct Loans
If you have both Direct and Stafford loans, you can make separate payments on each, or ask that they be consolidated into one loan program. Unfortunately, you cannot ask that your Direct and Stafford loans be combined; if you want to make only one payment, you will have to request consolidation. You cannot combine these loans because of the private versus federal nature of the two loan programs. You can choose to have your loans consolidated into either the federal Direct Loan program or the federal Family Education loan program, whichever you wish.
Standard Repayment
Your loans are automatically put into what is called standard, or level, repayment. The total amount you owe, including estimated interest, is divided into equal monthly payment installments over a ten-year period (this does not include periods of deferment or forbearance). If you borrow an amount where the minimum monthly payment of $50.00 repays the loans in fewer than 10 years, your loan is paid off in a shorter time. Standard repayment is the minimum time frame, and you pay the least amount of interest to the lender or servicer by choosing this option.
Graduated Repayment
Lenders and servicers must offer a repayment option called graduated repayment. Under this plan, you make lower monthly payments during the beginning of your career, when money is tight, and moderate payment increases during later years.
While graduated repayment might be necessary for some borrowers, you should read all the fine print. The interest you pay increases under this plan. For example, a borrower with an outstanding debt of $5,000 would pay $58.06 a month under the normal repayment plan, and end up paying $1,966.23 in interest during the ten-year repayment period. Under a graduated repayment plan, the monthly payments would be $33.59 for the first two years, with average increases of about $20 every two years for the next six years. During the final two years, the monthly repayment would be just over $100. Total interest paid: $2,510.96--over $500 in extra interest!
Extended Repayment Plan
If you need long-term lower payments, you might consider an extended plan. It lets you stretch your repayment over a period of 12 to 30 years, depending on your loan amount. Your fixed monthly payment is usually lower than it would be under the standard plan, but you'll pay more interest because the repayment period is longer.
The federal government and many other lenders allow you to combine an extended plan with graduated payments, which will lower your payments even further -- and increase your overall costs even more.
Postponing Repayment
If your loan payments are enormous or you've fallen on hard times, even the most flexible payment plan might not make ends meet. In many circumstances, it's possible to temporarily postpone making your loan payments or reduce the amount of your payments. These periods of relief are known as deferments (during which the government pays your interest) and forbearances (during which the amount you owe keeps going up because interest isn't paid).
Don't wait until you're already in default because of missed payments -- if you do, your options will be greatly reduced. At the first sign of trouble, call your loan holder and explain that it's impossible for you to make your monthly payments; you can explore your options for deferment or forbearance with the loan holder's represenative.
Income Continget/Sensitive Repayment
If your income is low or unstable, an "income-contingetn" or "income-sensitive repayment" plan may be right for you. As your income rises or falls, so do your monthly payments.
The amount of your payment is refigured every year, based on your annual income, household size, and loan amount. If you are married and file a joint federal tax return, under current rules your joint income is used to calculate the required monthly payment.
Federal Direct Student Loans.If you have a federal direct Stafford or consolidation loan, you can choose an income-contingent repayment plan. PLUS loans are not eligible. The amount you pay annually will vary, but it will never exceed 20% of your discretionary income -- that is, your annual gross income less an amount based on the poverty level for your household size. (To learn what your maximum payment will be, call the direct loan servicing center at 800-848-0979 or use the online calculator at www.ed.gov/DirectLoan/calc.html.)If your income is very low, you may not be required to pay anything under and income continget plan -- or the amount you pay each month may be less than the amount of interest that is accumulating. This may feel like a relief, but as time goes on, your loan balance will continue to grow.The only relief comes after 25 years -- if you haven't paid off the loan by then (not including periods of deferment or forbearance), the government will forgive the rest of what you owe. Even then there's a bit of a catch: The IRS will require you to report the amount forgiven and pay taxes on it unless you can prove that you are insolvent.
Federal Loans from Financial Institutions.If you obtained a federal Stafford, PLUS, HEAL, or consolidation loan from a financial institution, your lender or other loan holder probably offers an income-sensitive plan. Such plans are simlar to the governments's income-contingent plan, with a few important differences: There is no provision for loan forgiveness as there is under the government's plan, and because monthly payments must cover at least the accruing interest, the payments will never be as low as those under income-contingent plan. Also, your monthly payments may be slightly higher, because you must pay your loans in full.