Strategies for Successful Student-Loan Repayment

If you have Federal Stafford or Direct subsidized and unsubsidized loans, you are entitled to a  six-month period grace period before your first loan payment is due. By taking a few simple steps now to prepare for that first payment, you'll ensure that you start off on the right track in repaying your education loans and avoid the consequences of student loan default.
Step 1: Know what you owe. Students often underestimate their outstanding college debt. Some fail to maintain complete loan records. Others forget that interest accumulates on their unsubsidized loans while they attend school. If you have lost track of your paperwork, use the National Student Loan Data SystemStudent Access website to find the name of your loan provider or servicer and contact information, as well as additional information about your loans.
Step 2: Determine how much you can afford to pay each month. If you've already been hired for your first job, you should know your starting pay. If you're still looking for employment, consult the campus placement office about starting salaries for jobs in your field or consult the Bureau of Labor Statistics website.
To determine an affordable monthly student loan payment, use the Salary/Debt Wizard. Education lenders and servicers generally recommend that student loan payments not exceed 8 to 10 percent of the borrower's gross monthly income.
Step 3: Choose a repayment plan that works for you. You have several repayment options from which to choose. Most borrowers use the standard repayment plan. Use a loan-repayment calculator to estimate your payments under various repayment options.
You also might consider loan consolidation, which bundles multiple federal education loans into a single monthly payment and, depending on your total education debt, extends the repayment period.
You should select the plan that provides a monthly payment that you can afford but also pays back the loan as quickly as possible. The longer you take to pay off your loan, the more interest you will pay. In fact, you may prepay your loan principal at any time, without penalty, to reduce your interest costs. If none of these options provides payments you can afford, you should ask your lender or loan servicer about deferment or forbearance provisions, which allow temporary suspension or reduction of monthly loan payments.
Step 4: Keep in touch. Students who move following graduation should notify their school and their lender or loan servicer of any change in their address and telephone number. Otherwise, you might not receive important information about your student loan account. Borrowers who fail to notify their school or lender or servicer of address changes may incur additional charges for missed or late payments and risk severe penalties for student loan default
If you borrow, keep in touch with your lender, especially if personal circumstances change. Lenders are often willing to work with borrowers to make repayment possible and easier. You may be eligible for consolidation programs or deferment/forbearance plans.
Contact your lender if you:

• Leave school
• Change schools
• Change graduation dates
• Graduate
• Change your enrollment status from full-time to less than half time
• Change deferment status
• Change your name, address, or phone number
• Have trouble making your loan payment.

Loan-Repayment Options

Federal student loan borrowers can choose from several flexible options for paying back their education loans:

Standard repayment
Typically this is the least expensive option in terms of total interest costs. Most federal education-loan borrowers are placed into this repayment plan once the grace period has expired. This option provides a fixed monthly payment of at least $50 over a period of up to 10 years.

Graduated repayment
Monthly payments are initially lower and then increase later in the repayment schedule. Graduated repayment may be a good choice if you currently have limited income but expect higher earnings in the future. The maximum repayment term under this option is 10 years. Total interest costs are higher under this option than with standard repayment.

Extended repayment
Under this plan, you may reduce the amount of your monthly payment by spreading payments over a period of up to 25 years. You can select either a Standard-Extended Plan or a Graduated-Extended Plan.  In addition, extended repayment is available only if you have an outstanding education loan balance of more than $30,000. Because payments are stretched over a longer term, total interest costs will be significantly higher than under the other repayment plans.

Income-based repayment
You may qualify for this new repayment option if your loan payments during the year exceed 15 percent of your "discretionary" income. Under this plan you may limit your payments to 15 percent of your "discretionary" income. In addition, your payments may be less than accruing interest, you may qualify to pay back your loans over a period of up to 25 years and you may qualify for forgiveness of any remaining amount you owe after 25 years of payment. Income-based repayment is not available for parent PLUS loans or consolidation loans that repaid parent PLUS loans.

Income-sensitive repayment (FFEL Loans only)
This option is available for Federal Family Education Loan Program loans, meaning you used a third-party bank or credit union as your lender. With an income-sensitive plan, your monthly loan payment is based on your annual income. As your income increases or decreases, so do your payments. The maximum repayment period is 10 years. Total interest costs will be higher with this option than with standard repayment. Ask your lender for more information on FFEL Income- Sensitive Repayment Plans

Income-contingent repayment-ICR (Direct Loans only)
This option is available for Direct Loans, except Direct PLUS loans to parents. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:

• The amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
• 20 percent of your monthly discretionary income.

Loan consolidation
There may be advantages to consolidating (combining) your federal student loans into one loan, starting with the convenience of making a single monthly payment. Consolidation generally extends the repayment period, resulting in a lower monthly payment. This may make it easier for you to repay your loans. However, you will pay more interest if you extend your repayment period through consolidation since you will be making payments for a longer period of time. Contact the Direct Loan Consolidation Center for more information: at 1-800-557-7392,
Loan consolidation may not the best choice for every borrower. You are likely to pay more total interest because you are extending your payment period and making smaller payments over a longer term.

For more information: Visit the Dept. of Education Student Aid section on Consolidation at: http://studentaid.ed.gov/consolidation

Questions?
Contact your loan servicer or the holder of your loans for more information about loan-repayment options. If you don't know who services or holds your loans, use the National Student Loan Data System.

Teacher Loan Forgiveness

Federal legislation made significant changes in the terms of teacher loan forgiveness for Stafford-loan borrowers. The eligibility requirements and maximum amounts of loan forgiveness now differ depending on when a borrower began teaching service that qualifies for loan forgiveness and the subject matter that the borrower is employed to teach.

Who is Eligible?

• You must have been a new borrower as of Oct. 1, 1998, who had no outstanding loan balance on a Federal Family Education Loan Program or William D. Ford Federal Direct Loan Program loan as of that date or the date you obtained a loan after Oct. 1, 1998.
• You must have been employed as a full-time teacher for five consecutive, complete years in a qualified elementary or secondary school serving a low-income community or for an educational service agency. At least one of the five years of qualified teaching service must have been after the 1997-1998 academic year.
• The loan for which forgiveness is sought must have been made before the end of the fifth academic year of qualified teaching employment.
• If you are in default on the loans for which you seek loan forgiveness, you must have made satisfactory repayment arrangements with your loan holder.
• You may not seek loan forgiveness based on teaching service for which you already have received a benefit through the AmeriCorps program.

Additional eligibility requirements for teachers who began teaching service that qualifies for loan forgiveness prior to Oct. 30, 2004.

• If you are employed as an elementary-school teacher, you must have demonstrated knowledge and teaching skills in reading, writing, mathematics and other areas of the school's curriculum.
• If you are employed as a secondary-school teacher, you must be teaching a subject that is relevant to your academic major.
• Up to $5,000 of the outstanding balance of a qualified loan may be forgiven.

Additional eligibility requirements for teachers who began teaching service that qualifies for loan forgiveness on or after Oct. 30, 2004.

• You must be a highly qualified teacher as defined in the Elementary and Secondary Act of 1965.
  Up to $5,000 of the outstanding balance of a qualified loan may be forgiven.

Additional eligibility requirements to qualify for a maximum $17,500 in loan forgiveness.

• You must be a highly qualified teacher as defined in the Elementary and Secondary Act of 1965 and employed for the required period as a full-time secondary-school teacher of mathematics or science, or as an elementary- or secondary-school special-education teacher.

Definition of highly qualified teacher. To be deemed highly qualified, teachers must have: 1) a bachelor’s degree, 2) full state certification or licensure, and 3) prove that they know each subject they teach.
Additional Information

• The program forgives only the outstanding principal and interest of qualified federal education loans. Amounts that you previously paid will not be refunded..

For further information
Visit the Dept of Education-Student aid Cancellation/Deferment Options for Teachers at: http://studentaid.ed.gov/

Public Service Forgiveness

Direct Loan borrowers working in specified public service occupations may quality for forgiveness of outstanding loan balances after making 120 monthly loan payments. To qualify, payments must have been made after Oct. 1, 2007, which means actual loan forgiveness under this program won’t begin until October 2017. Moreover, most federal student loans are fully repaid within 120 monthly payments. As a result, only borrowers who repay under certain flexible repayment options likely will qualify for public service loan forgiveness.

For further information: Visit the Dept of Education-Student aid Public Service Loan Forgiveness (PSLF) at:
Studentaid.ed.gov/Public Service Loan Forgiveness 

View loan forgiveness option Fact Sheet