While a student can pay off any portion of their loans while they’re still in school, official repayment begins usually after a student graduates, drops below half-time enrollment, or leaves. Most loans offer students a grace period after graduating or dropping below half-time enrollment status, which is usually a period of six to nine months before having to repay the loan.
After the grace period is over, students have to select a repayment plan to begin paying back their loans. Interest continues to accrue during this period for most loans. The grace period varies, but for Stafford loans, for example, is six months. PLUS loans have no grace period and a student enters repayment as soon as all funds are fully disbursed. The grace period for Perkins loans vary by institution.
There are several repayment plans available to borrowers who want to begin paying off their loans, as well as options for those who cannot begin to pay, despite their grace periods being over. For those who cannot pay due to financial difficulty, there is deferment and forbearance, where a borrower can postpone payment for various periods of time. Not all institutions offer deferment or forbearance, so it’s important to check with your lender. For more information on deferment and forbearance with federal loans, check out the government’s Federal Student Aid site.
For those who are ready to pay, there are a variety of repayment options. Some of the most popular repayment plans include the Standard Repayment Plan, Graduated Repayment Plan, Income-Based Repayment Plan, and Income-Sensitive Repayment Plan.
The Standard Repayment Plan is as the name suggests — a plan that keeps your payments the same throughout the entire period, which usually means higher monthly payments compared to other plans. The monthly payment is estimated by assuming you will pay off your loan — principal and interest — within ten years. This is the default payment method for most loans unless you request a different repayment option.
With the Graduated Repayment Plan, payments start off small, but increase over time. This repayment option usually means a higher interest over the term of repayment, since smaller payments up front go towards interest instead of the principal balance.
If you opt for the Income-Sensitive-Repayment option, your payments will be tied to how much you make monthly. If your monthly income is low enough, your payment could be $0, but as your income increases, your monthly payment does as well. This repayment plan needs to be renewed annually.
Different institutions offer different plans not limited to the ones we discussed above. The most important thing to do once a student enters his or her repayment period is to become knowledgeable of the different options that are offered with each loan, how much of a variation there will be in monthly payments, and how it will affect the total amount you will have to pay over the course of the repayment period.
Another options students have is to consolidate all loans into one. It can make the payment process simpler, but it can make the monthly payment higher and students might lose some benefits that were part of the original loan terms. For more information on federal loan consolidation, visit Federal Student Aid.