Student Loan Repayment after Graduation, Leaving School, and Before Entering the Work Force

College students use several forms of financial aid to meet higher education expenses. Grants and scholarships are preferred, because money that is awarded for college does not require repayment. Landing merit scholarships usually requires exceptional performance in academics, athletics or leadership activities. Grants, on the other hand, are need-based, so financial considerations are the primary qualifiers for receiving aid. Gift-aid, in either form, reduces students’ borrowing requirements for college, but most still utilize student loans to cover all the bases.

Public and private loan programs serve vital roles for university, community college, and graduate school students, but repayment is a condition of borrowing. Your Master Promissory Note forges a legal agreement between you and your lender, which establishes your commitment to pay the money back – with interest.

Each student loan program carries its own unique eligibility requirements and repayment conditions. Government-backed loans provide the best interest rates, and offer the greatest flexibility for repayment. Private loans are harder to get, because formal credit checks are required, but even bank loans provide flexible payment alternatives. Consider these options for managing and repaying student debt:Student loan extended repayment plan

Federal Direct and Stafford Loans are packaged with grace periods that last for six months after borrowers leave school. The six months cushion following college graduation provides a transition window to the workforce. Even if you don’t graduate, your clock starts ticking when you leave school.

Perkins Loans are special loans issued under the William D. Ford Federal Direct Loan umbrella, which are reserved for the neediest applicants. Perkins Loan repayment does not begin until 9 months after graduation, provided the program participant was enrolled in school full-time preceding repayment.

Depending on the repayment plan selected, repayment terms stretch between 10 and 25 years. Additional distinctions are made between Subsidized and Unsubsidized Direct Loans. Interest on subsidized federal student loans is paid by the U.S. Government during certain periods over the life of the loan. Unsubsidized Stafford Loan interest payments are due within 60 days of the loan disbursement. Many student borrowers opt to defer these payments, by adding interest to the loan principal, to be repaid at a later date.

Parents and graduate students who borrow PLUS Loans do not enjoy automatic grace periods following school. Repayment of principal and interest begins within 60 days of the final loan disbursement. Parent PLUS borrowers, who are students themselves, qualify for six-month deferment of PLUS repayment. In addition, parents who borrowed for dependents’ education after 2008 are eligible to defer repayment until six-months after the student leaves school.

Student loan default carries consequences that are hard to shake, so every effort should be made to avoid falling behind on repayment. Government loan repayment allows for several strategies; each tailored to help students stay current with payments. When borrowers hold more than one federal student loan, they are eligible to consolidate them under the Direct Consolidation Loan Program. Better interest rates, and affordably structured payments result from consolidation, because repayment terms are extended. Smaller monthly payments keep financially challenged participants on-track, but with extended repayment, more interest is paid over the course of the loan term.

Federal loan repayment options provide affordable repayment solutions within your budget:

Several repayment options are available to facilitate timely payments from student borrowers. Payment options include a new method called ‘Pay as You Earn‘. Parents who borrow for their dependents’ education are not eligible for this option, but graduate students borrowing independently qualify. Pay as You Earn provides a viable alternative for students who are going through financial difficulties, but expect their repayment ability to improve. Other payment plans include:

  • Standard – This 10-year repayment option allows for consistent, fixed monthly payments of at least $50 each.
  • Graduated – Another 10-year repayment plan; this option starts with lower payments, which rise as graduates become financial established. As payments progress, they are adjusted upwards every two-years, until the debt is paid.
  • Extended - Repayment terms extend as long as 25 years for this repayment approach. More interest is paid, but smaller payments allow borrowers to stay current on payments and avoid default.
  • Income-Based Repayment - Earnings-based monthly payments represent a maximum of 15% of a borrowers income. Repayment can take as long as 25 years, during which monthly payments change regularly.

Student loan default is not an option under any circumstances, but failing to pay a commercial loan has far-reaching implications. Most college students require cosigners to secure private loans, so when payments are not made on time, it is not just the student who suffers. Cosigners who add their positive credit histories to student loans are subject to the same penalties as the students who borrow.

Like the Department of Education, private lenders want you to pay on-time, so they are willing to structure payment plans that work within your ability to pay. Always be proactive with your lender, so accommodations can be made - before credit sanctions set in. Once you default, it is hard to wipe the blemish from your record.

Some circumstances set the stage for temporary suspension of your student loan repayments. Deferment and forbearance delay payments until a later date, and depending on loan terms, the government might pay your interest in the meantime. Subsidized Loans and Perkins Loans qualify for government interest payments.

Student loan deferments are not automatic; most require borrowers to apply through their loan servicers. In addition; especially for Perkins program participants, students seeking deferments request them through campus financial aid offices.

Special circumstances allow students to utilize forbearance to stay on top of college debt. Illness and severe financial hardship qualify for temporary suspension or reduction of student loan payments. For up to twelve months, students are forgiven payments, but interest accrues throughout the forbearance period. Even subsidized loans are subject to capitalized interest during forbearance.

Mandatory forbearance creates automatic payment suspensions for certain students – like those serving medical or dental internships or residencies. Students whose monthly payment is more than 20% of their gross monthly income also qualify.


Student loan extended repayment plan

The US government has provided a great opportunity in the form of student loans to individuals who are looking to pursue higher education at their desired academic institutions. However, it is important that you select the right loan repayment plan that suits your monthly income and your personal preferences. The choice of loan repayment plan is made when you initiate repaying your student loan. There are several types of repayment plans for student loans, including:

  • Standard loan repayment plan
  • Pay-as-you-earn plan
  • Income-sensitive repayment plan
  • Income-driven repayment plan
  • Graduated loan repayment plan
  • Extended loan repayment plan

As the name implies, under extended loan repayment plan the borrower pays back the principal amount and the interest charged over an extended time period, usually extending up to 25 years. The repayment term depends on the type of loan, the principal amount borrowed, and borrower’s personal preferences.

Extended loan repayment plans are very similar to standard plans, except that the repayment term is stretched over a longer period. Under this plan, the amount of monthly repayment is decreased, which increases a borrower’s ability to make timely monthly payments. However, the amount of interest paid by the borrower is higher when compared to standard loan repayment plan.

What Types of Student Loans are Eligible for Extended Repayment Plan?

The following types of student loans can be paid back using the extended repayment plan.

  • Direct PLUS loans
  • FFEL PLUS loans
  • Direct and FFEL consolidation loans
  • All direct subsidized and unsubsidized loans
  • Federal Stafford loans, both subsidized and unsubsidized

In addition to the type of loan, there are some other requirements as well which must be fulfilled in order to repay the loan using the extended plan. The total outstanding balance should be at least $30,000 or more. Also, borrowers who want to pay their FFEL or Direct loans using this plan should make sure that have no outstanding balance as of October 7 th , 1998, or on the day they acquired the loan after October 7 th , 1998.

Under extended repayment plan, borrowers have the liberty to pay off their loans over 25 years instead of 10 years. They can choose any of the following two modes of repayment.

As the name indicates, the amount of monthly payments remains fixed over the repayment term with this type of repayment plan. However, interest capitalization during the repayment term may result in small changes in monthly repayments.

With this plan, monthly repayments increase gradually over the repayment term. You may start with a low monthly payment and may increase the amount as your paying capacity increases. Generally speaking, the repayment amount is revised every two years.

What are the Benefits of Extended Loan Repayment Plan?

With an extended repayment plan, students can repay their loans in smaller monthly payments as compared to standard repayment plans. Also one can opt for the graduated mode of extended repayment plan if they have a lower monthly income but they anticipate that it will increase after some time. However, it is important to remember that with an extended repayment term, the overall interest paid on the principal amount is increased.

What the Student Loan Relief Department Can Do For You?

Student loans borrower are provided with an excellent option to change their repayment plan over the repayment term, therefore, they should keep themselves updated with the different repayment plans, and choose one that suits their financial circumstances.

The Student Loan Relief Department is a group of professionals having deep expertise and extensive experience on matters related to repayment of student loans. Our experts can help you understand the pros and cons of different repayment plans so that you can choose one that allows you to repay your loan in flexible monthly payments.

If you would like to know more about student loan forgiveness and repayment plans, you may contact us at (855) 880-0210 .


Which Student Loan Repayment Plan Is Right For You?

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Student loan extended repayment planToday we welcome Natalie Bacon, who is an attorney and blogger at The Finance Girl. She’s written an incredible guide to student loan repayment that I hope sheds some light on a topic that many graduates are in the dark about. Enjoy and please share with others!

So, you’ve graduated from school and a few months have gone by. Hopefully, you’re fully employed and financially prepared for what you are about to receive in the mail: a letter stating that your student loan payments will soon become due. Don’t panic! Learn the different student loan repayment plans and choose what’s best for you.

It’s important for you to understand the various plans yourself because no one else will care more about your student loans (or your finances as a whole) than you will.

Here’s a guide to help you better understand the student loan repayment plans.

Private loans are repayable on lender-specific plans. This means that your private loan lender will have specific repayment plans that you may choose from. For example, your lender may offer a standard, 10-year repayment plan and a 25-year repayment plan (and that’s it!). Private lenders usually do not offer income-based repayment plans (unlike federal loans). So, you need to contract to lender to determine your specific options.

Federal student loans may be repaid using one of the repayment plans below. Federal loans include, Direct Loans (subsidized and unsubsidized), Stafford Loans (subsidized and unsubsidized), PLUS Loans, Federal Family Education Loan Program (FFEL) Loans, and consolidated loans. Note that no new FFEL Loans have been issued since July 1, 2010. While there are many options to choose from, several of the plans are limited by the loans that qualify (i.e., pay attention to the ineligible loans when considering the repayment plan that is best for you).

Qualifying Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans (to you and your parents), Direct Consolidation Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.

Ineligible Loans: None.

Details: Repay your loans at a fixed amount (of at least $50) for 10 years for all loans, except for Direct Consolidation Loans and FFEL Consolidation Loans. These loans are paid for over a period of 10 to 30 years, depending on your total amount of student loan debt. You pay less interest under this plan than under other plans.

Graduated Repayment Plan

Qualifying Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans (to you and your parents), Direct Consolidation Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.

Ineligible Loans: None.

Details: Repay your loans at a lower rate initially, then, about every two years your payments increase, for 10 years. This applies to all loans except Direct Consolidation Loans and FFEL Consolidation Loans. These loans are paid for over a period of 10 to 30 years, depending on your total amount of student loan debt.

Qualifying Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans (to you and your parents), Direct Consolidation Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.

Ineligible Loans: None.

Details: Repay your loans at a fixed or graduated amount for 25 years. You must owe more than $30,000 to qualify for this plan.

Income-Based Repayment (IBR) Plan

Qualifying Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans made to you (the graduate or professional student), and Direct Consolidation Loans that do not include Direct PLUS Loans made to parents, FFEL PLUS Loans made to you, and FFEL Consolidation Loans that do not include PLUS Loans made to parents.

Ineligible Loans: Direct PLUS Loans made to parents and Consolidation Loans with PLUS Loans that were made to parents.

Details: Repay your loans at a monthly payment of 15% of your discretionary income for 25 years. Discretionary income is determined by looking at the amount by which your adjusted gross income exceeds the poverty line (for your family size and in your state). A partial financial hardship is required to qualify. You have a partial financial hardship if your monthly payment under the Standard Repayment Plan would be more than your monthly payment under IBR. Once on the plan, even if your partial financial hardship no longer exists, you may continue on the plan. You must submit annual documentation of your income to set your payment each year. Payments change as your income changes. If you owe after 25 years, whatever amount remains may be forgiven (but you may owe taxes on the forgiven amount).

Pay As You Earn Repayment Plan

Qualifying Loans: Direct Subsidized, Direct Unsubsidized, Direct PLUS Loans made to you (the graduate or professional student), and Direct Consolidation Loans that do not include PLUS Loans made to parents.

Ineligible Loans: Direct PLUS Loans made to parents, Direct Consolidation Loans that include PLUS Loans made to parents (Direct or FFEL), and FFEL Loans.

Details: Repay your loans at a monthly payment that is 10% of your discretionary income for up to 20 years. The payment amount increases or decreases yearly based on your adjusted gross income and family size. To qualify, you must have a partial financial hardship. Once on the plan, even if your partial financial hardship no longer exists, you may continue on the plan. Only “new borrowers” are eligible, meaning your first loan must have been taken out on or after October 1, 2007, and you must have received a loan disbursement on or after October 1, 2011. Generally, your payments under this plan will be lower than under IBR. If you owe after 20 years, whatever remains may be forgiven (but you may owe taxes on the forgiven amount).

Income-Contingent Repayment Plan

Qualifying Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to you (the graduate or professional student), and Direct Consolidation Loans except Direct PLUS Consolidation Loans.

Ineligible Loans: FFEL Loans and PLUS Loans made to parents, unless consolidated into a Direct Consolidation Loan post July 1, 2006.

Details: Repay your loans at a monthly payment that is calculated yearly based on your adjusted gross income, family size, and amount owed, for 25 years. Payments change as income changes. Your payments are determined by looking at 20% of your discretionary income compared to what is the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor. Whichever is lower is the amount you’ll pay. You do not need to show a partial financial hardship to qualify for ICR. This is a different formula than the IBR formula, and usually results in higher monthly payments than IBR. If you owe after 25 years, whatever remains may be forgiven (but you may owe taxes on the forgiven amount).

Income-Sensitive Repayment Plan

Qualifying Loans: Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.

Ineligible Loans: Direct Loans.

Details: Repay your loans at a monthly payment based on annual income, for 10 years. Payments change as income changes. Loans are not forgiven under this program.

The Public Service Loan Forgiveness (PSLF) Program is another option where your Direct Loans are forgiven after 10 years in a public service position as long as you’ve made 120 qualifying loan payments. (Note: this applies only to payments beginning after October 1, 2007.) Only Direct Loans qualify for this program, so if you have FFEL or Perkins Loans, you would have to consolidate them into a Direct Consolidation Loan in order to use this program. After 10 years, if your loans are forgiven, the amount forgiven is not taxable as income.

You must be on one of the following three repayment plans in order to qualify for PSLF: Income-Based Repayment, Pay As You Earn Repayment, or Income-Contingent Repayment.

Employment with the following employers constitutes as public service under PSLF: the government; not-for-profit tax-exempt organizations; private not-for-profit organizations that are not tax-exempt if the position pertains to public service, such as military service, public safety, law enforcement, emergency management, public health, public education, public library, public interest law services, and public service positions for people with disabilities and the elderly.

A Few Things to Remember

  • You can change your repayment plan at any time, so don’t panic if you sign up for the wrong plan.
  • Perkins Loans are repaid based on a plan determined by your school (i.e. they do not qualify for the plans above).
  • You will always end up paying less in the long run if you pay on the Standard Repayment Plan, over a period of 10 years. That is to say, be careful using an income-driven plan because you may pay significantly more money over time.
  • If you can, learn this stuff now, instead of waiting until your loans are due.

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Do you have student loans? What repayment plan are you using or will you use?