Consolidation and Repayment Plans
Consolidation
When it comes to consolidation, the types of loans you have matters, but most federal loans, including Stafford, Perkins, Direct Plus and Supplemental loans, can be consolidated with other federal loans. One major advantage of federal consolidation loans is that borrowers don't need a stellar credit score to qualify and they'll always get a fixed interest rate. Regardless of how the market fluctuates, borrowers will never pay more than 8.25 percent on their consolidation loans.
If you’re having trouble keeping track of all of your federal student loans, or you want to extend the amount of time you have to repay them, consolidation may be the solution for you.
Standard Repayment
Standard repayment is simple: You pay the same amount each month for 10 years. On this plan, the total amount of interest you have to pay will generally be lower, too – so, if you can afford the monthly payments, it’s generally the best overall deal.
Standard repayment is the plan you’re automatically enrolled in unless you request a different one.
Extended Repayment
Extended repayment is useful if you need more time to repay your loan. It reduces the amount you owe each month, but you’ll make payments over a longer period of time.
Extended repayment is helpful if you don’t qualify for other payment plans based on your income but still need to pay less each month. Also, this option is only available for borrowers who owe more than $30,000 overall in federal loans.
Over the long term, extended repayment will cost you more than standard repayment, because under this plan, interest has more time to build up on your loan.
Graduated Repayment
Graduated repayment allows you to pay low monthly payments for 2-4 years before they begin to gradually increase.
This option is helpful if you are just starting out and expect to earn more money as time goes on. However, graduated repayment will likely cost you more than standard repayment over time. This is because, under graduated repayment, your interest continues to grow on a larger unpaid portion of your loan balance for longer.
Income-Based Repayment
Income-based repayment (IBR) determines how much you pay each month by calculating your income and family size. Based on these factors, and your monthly loan payment amount, you may qualify for partial financial hardship. If you do, your payments are reduced to no more than 15% of your discretionary income.
After 25 years of repayment and 300 eligible payments in IBR, whatever is left of your loan may be forgiven! Just don’t forget that this amount is taxable.
Pay As You Earn
Pay As You Earn is another repayment plan that's similar to IBR. It has lower repayment requirements (10% of discretionary income), and it forgives your unpaid loans sooner (20 years). However, it's tougher to qualify.
Pay As You Earn is only for Direct loan borrowers who took out their first loans after October 1, 2007, and took out their last loans after October 1, 2011—or borrowers with Consolidation loans made after October 1, 2011, that include only loans made on or after October 1, 2007.
Income-Sensitive Repayment
Income-sensitive repayment (ISR) lets you decide what percentage of your income you can afford to pay toward your loan each month for up to 5 years.
After 25 years of repayment and 300 eligible payments in IBR, whatever is left of your loan may be forgiven! Just don’t forget that this amount is taxable.
- ISR is only available for FFELP Stafford and Grad PLUS loans. Parent PLUS and Direct loans don’t qualify.
- You have to re-apply and provide your new financial data every year.
- The total cost of your loan will likely increase, because interest builds up on your unpaid loan balance for longer.
- You can only use ISR for up to 5 years.
Income-Contingent Repayment
Income-contingent repayment (ICR) determines your monthly federal student loan payment amount based on calculations that consider several factors, including your family size, your family’s income, and your total amount of Direct loan debt.
After 25 years of repayment and 300 eligible payments in ICR, whatever is left of your loan will be forgiven! Just don’t forget that this amount is taxable.