Repaying College Loans

College Loans got you stressed?

Between facing the real-world and the pressure of repaying student loans, every student feels some stress when they have finished college. The purpose of this article is to explain the options you have when repaying your student loans.

Once the grace period begins, the lender will send the student loan repayment schedule through the mail. It will also include the total amount of money you are expected to repay, an estimation of monthly payment totals, and the due date of your first payment. When repaying to loans, you have four repayment choices you should consider before you start. They are:

Level Repayment Plan

By default, most loans are set up for a Level Repayment Plan. It is recommended that you continue with this plan if you're able to make your monthly payments.

With the Level Repayment Plan, you pay the same amount every month for the duration of your repayment period. The minimum monthly payment is determined by the length of the repayment period and the amount of the loan. In the long run, this is typically the least expensive option in terms of total interest cost. The repayment period is setup as 10 years.

Extended Repayment Plan

With the Extended Repayment Plan, you pay the same amount every month for the duration of your repayment period. This period is extended to 12 to 30 years, thus making your payment lower.

Graduated Repayment Plan

The Graduated Repayment Plan starts off with lower payments that gradually increase during the repayment term. If you expect your income to increase over time, this plan may be right for you.

Income-Contingent Repayment

The Income-Contingent Repayment Plan bases your monthly payment on your yearly income, family size, and loan amount. As your income rises or falls, so do your payments. After 25 years, any remaining balance on the loan will be forgiven, but you may have to pay taxes on the amount forgiven.

Income-Sensitive Repayment Plan

The Income-Sensitive Repayment Plan allows you the flexibility to select a monthly payment amount that is based upon your gross monthly income. Payments are adjusted up or down annually as your income rises or falls. The total amount repaid on this loan will be higher that the Level Repayment Plan and Graduated Repayment Plan.

Income-Based Repayment

The College Cost Reduction and Access Act of 2007 introduced income-based repayment as a more generous alternative to income-sensitive and income-contingent repayment. The plan will be starting on July 1, 2009. Unlike income-contingent repayment and income-sensitive repayment, it is available in both the Direct Loan and FFELP programs. Income-based repayment is like income contingent repayment, but caps the monthly payments at a lower percentage of a narrower definition of discretionary income.

Loan Consolidation

If you have outstanding balances on several different federal loans, you may be able to combine them into one new consolidated loan with one monthly repayment. This reduces the size of your monthly payments. For more information, please read our article about loan consolidation.