Q: What repayment options do recent graduates with federal student loan debt have (besides student loan consolidation) to help make their student loan payments more affordable?
A: With federal student loans, there are multiple alternative payment plans for those borrowers who qualify. The alternative repayment options available for federal student loans are one reason why students are urged to apply for federal student loans first, before applying for private student loans for college. Here is a basic overview of 6 common federal student loan repayment plans. Note that you may have additional options, depending on what type of federal student loans you have.
Standard Payment: This is the repayment schedule that every borrower is automatically assigned. The standard repayment plan typically has the highest monthly payments, because the repayment term is only between 5 and 10 years. With the standard repayment plan you will pay less over the lifetime of your loans, because the repayment term is fairly short.
Extended Payment: If you have total outstanding student loans that exceed $30,000, you may be eligible to repay your student loans on a fixed or graduated payment schedule (up to a 25 year repayment term). Since you are extending the repayment term of the loan, your monthly payments will be lower, but you will pay more in interest over the lifetime of the loan.
Graduated payment: With this type of repayment plan, payments start out low and gradually increase during the repayment period. This plan may be a good fit for individuals who expect to have increased income over time.
Income Contingent Repayment: With this type of repayment plan the loan payments are calculated according to income and total amount of debt. The loan repayment term can be up to 25 years, and is adjusted according to any changes in income. You may also be eligible to have the remaining balance of your loans discharged after the 25 year repayment term is over, if you meet specific requirements.
Income Sensitive Repayment: Borrowers who meet specific eligibility requirements may be eligible to make loan payments calculated according to gross monthly income. The loan repayment term is 10 years.
Income-based Repayment
With this plan your monthly student loan payment will be based on your income during any period that you display a partial financial hardship. Borrowers, who meet specific requirements over a specified period of time, may qualify for discharge of any remaining student loan balance. This is a general overview of federal student loan repayment plans. Please visit studentaid.ed.gov for more details and requirements.
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