How to Prepare for Student Loan Repayment

Highlights:

• Under traditional repayment plans, borrowers pay fixed amounts of money toward their loans over a certain period of time.
• Borrowers who have high debt loads relative to their income may consider income-driven repayment plans.
• If you are facing serious hardship and are unable to undertake monthly payments, certain situations may allow you to defer repaying your federal student loans.

Resuming federal student loan payments after a deferment period can be intimidating. Luckily, most federal student loans offer a number of accessible repayment options for borrowers.

If you expect to resume student loan payments in the near future, now is a good time to look into your student loan repayment plan options.

Traditional Repayment Plans

Under traditional repayment plans, borrowers pay fixed amounts of money toward their loans over a certain period of time.

• Standard Repayment Plan. With this plan, monthly payments are set at a fixed amount that ensures your loans are paid off within 10 years. You generally end up paying less money in the long run on a standard plan than you would with other repayment options, but it's not the best fit for everyone. If your income varies month to month, it may be hard to keep up with fixed payments.
• Graduated Repayment Plan. With this plan, repayment starts out in lower amounts and gradually increases over time. As with the standard plan, the monthly amount helps make sure your loans are paid within 10 years. However, you may accumulate more interest over the life of the loan and end up paying more overall than you would with a standard plan.
• Extended Repayment Plan. With an extended repayment plan, your loans are paid off within 25 years. Although you may pay more in interest than you would with standard or graduated plans, your monthly cost will generally be lower. Payments may be fixed or they may increase from month to month. In order to qualify for this type of plan, you must be a Direct Loan borrower with more than $30,000 in outstanding loans.

Income-Driven Repayment Plans

Borrowers who have high debt loads relative to their income may consider income-driven repayment plans.

• Revised Pay As You Earn Repayment Plan (REPAYE). On this plan, your monthly payments will generally be 10 percent of your discretionary income. The amount you pay is recalculated each year based on your income and family size at the time. You will likely end up paying more over the life of the loan than with a standard plan.
• Pay As You Earn Repayment Plan (PAYE). PAYE is another option that requires you to have high debt relative to your income. Monthly payments are 10 percent of your discretionary income, but they can never be more than you would have paid under the 10-year Standard Repayment Plan.
• Income-Based Repayment Plan (IBR). IBR is similar to PAYE in terms of eligibility. The only difference is your monthly payments will be either 10 or 15 percent of your discretionary income, depending on when you received your first loans. They will still never be more than you would have paid under the 10-year Standard Repayment Plan, though.
• Income-Contingent Repayment Plan (ICR). Your monthly payment will be either 20 percent of your discretionary income or the amount you would pay on a fixed-payment plan over 12 years, adjusted according to your income — whichever is less.
• Income-Sensitive Repayment Plan. This plan is only available if you have FFEL Program loans, which are not eligible for forgiveness. Your monthly payment will be based on your annual income, and your loan will be paid in full within 15 years.

Options for When You Can't Pay Your Student Loans

If you are facing serious hardship and are unable to undertake monthly payments, certain situations may allow you to defer repaying your federal student loans.

• Deferment. Various circumstances may qualify you for deferment, including cancer treatment, economic hardship, re-enrolling in school, military service, rehabilitation training and unemployment. You will not have to make monthly payments during the deferment period, and interest typically does not accrue, though this can vary based on the type of loan you have. Be sure to research the way interest is handled with your individual loan.
• Forbearance. With forbearance, you almost always have to pay the interest that accrues while you are not making monthly payments. The circumstances that qualify you for this temporary relief can include financial difficulties, medical expenses, a change in employment, AmeriCorps service, National Guard duty, some teaching services and enrollment in a medical or dental internship or residency.

Steps to Take Before Repaying Your Student Loans

Regardless of the repayment option you choose, there are steps you can take to help ease the transition back into regular loan payments.

• Make sure your federal student loan information is up to date with your loan servicer. First, head to your account on your loan servicer's website, as well as on StudentAid.gov. Update your contact information, including your email, phone number and mailing address. Also check the payment settings for your loans — if you have previously had autopay set up, make sure that your payment information is accurate and see if there are any steps you must take to opt back into the service.
• Review your budget to determine how much you can afford to pay toward your federal loans each month. Set aside time to reevaluate your budget and calculate what you can pay toward your federal student loans each month. Take your current financial situation into account, as well as how any interest accrued on your loans might factor into your repayment process.

For more information on resuming payment for your student loans, reach out to your individual loan servicer directly.