Repaying Your Student Loans

Part II: Loan Repayment Options

Hopefully you've gotten through the first part of our repayment series without too much difficulty and are well prepared to tackle your repayment with a complete list of your outstanding student loans and a repayment budget. Your next step is to familiarize yourself with all of the different student loan management options so you can start making payments.

Loan Deferment and Forbearance

There may be times when you are not able, or are not required, to make payments on your loans. Both a deferment and forbearance allow you to postpone or temporarily reduce your loan payment. These benefits are available to you if due to certain circumstances you cannot afford to make any payments or what you can afford to pay is less than the lowest payment required under any repayment plan.

A deferment requires that you meet the criteria for the specific type of deferment, while the forbearance is more of a general postponement that typically does not require proof or supporting documentation. The difference between deferment status and forbearance status is that the government continues to pay the interest on the subsidized Stafford (Direct or FFEL) while the loan is in deferment, but it does not pay the interest while the loan is in forbearance. You will need to contact your lender/servicer directly to apply for a forbearance or deferment.

Types of Deferment

  • In school deferment
  • Military deferment
  • Post Active Duty deferment
  • Graduate Fellowship deferment
  • Rehabilitation Training (for the disabled) deferment
  • Unemployment deferment
  • Economic Hardship deferment

Types of Forbearances

Discretionary
Approved at the discretion of the lender or servicer. You can request forbearance for financial hardship, illness, life changing circumstance, or natural disaster.
Mandatory
There are specific types of situations where the lender/servicer is required to grant a you a forbearance, such as if you are enrolled in a medical or dental internship/residency program (beyond the maximum deferment time limit); if you serve on active military state duty as a member of the National Guard; if you have student loan debt burden equal to or greater than 20% of your monthly income; if you are performing qualifying service under Teacher Loan Forgiveness Program; if you qualify for partial loan repayment under the student loan repayment programs administered by the Department of Defense.

For more information on deferment and forbearance options visit the Department of Education's Federal Student Aid website for more information.

Federal Loan Consolidation

It may be beneficial to you to combine, or consolidate, all of your federal student loans into one loan, allowing you to make one monthly payment for all of your federal loans. All federal loan consolidations must be done through the Department of Education’s Direct Loan Consolidation program. If you plan to take advantage of Public Service Loan Forgiveness (PSLF) and have loans outside of the Direct Loan program, you must consolidate your federal loans through the Direct Loan Consolidation program.

Requirements
Must be in repayment or grace period on a Direct Loan or FFEL Program Loan
Loan Types
Direct and FFEL Program Stafford, and Graduate PLUS loans, Federal Perkins Loan. Private student loans cannot be included.
Payment Information
When you consolidate your loans, the interest on the new loan will be the weighted average of the loans you included in the consolidation and will be fixed for the life of the loan. All federal student loan repayment options are available to Direct Consolidation Loans except Income Sensitive Repayment.
Timing
The consolidation process can take 60 -90 days, shorter if the application is filed online. With this in mind, you should wait until you are about 60 days away from the start of repayment to apply for consolidation so that you can take advantage of the grace periods on your loans. The grace period on the loan(s) included in the consolidation will end and repayment on the new consolidation loan will begin approximately 30 days after the consolidation is processed.

You cannot reconsolidate an existing consolidated loan unless you are including a new federal loan into the consolidation. You can, however, reconsolidate an existed consolidated loan if you are doing it for the purpose of qualifying for Public Service Loan Forgiveness.

The federal Perkins Loan can be included in the federal loan consolidation. However, the Perkins loan has certain benefits, such as a lower interest rate and loan cancellation for those employed with eligible law enforcement employers, that will be lost if you consolidate it with the federal Stafford and Graduate PLUS loans.

You can apply for Direct Loan Consolidation online or over the phone at 1-800-557-7392.

Visit the Department of Education's Federal Student Aid website for more information.

Perkins Loan Cancellation

The Perkins loan has an added benefit of partial and full loan cancellation for borrowers employed in certain types of public service or law enforcement (includes District Attorney). The amount cancelled depends on the field and the length of service.

Visit the Department of Education's Federal Student Aid website for more information.

Types of Repayment Plans

Standard Repayment Plan

Payments of a fixed amount made over 10 years. You will pay the lowest amount of interest over the life of the loan. This is the default repayment plan when no other plan is requested.

Graduated Repayment Plan

Payments start at a low amount and gradually increase over time. The repayment term is ten years, but you will pay more interest over the life of the loan than with standard repayment.

Extended Repayment Plan

Under this plan you have up to 25 years to repay the loan with either fixed or graduated repayment amounts. You must have at least $30,000 of federal Stafford loan debt in order to qualify.

Income-Based Repayment (IBR)

Income Based Repayment limits a borrower's monthly payment to 15% of their discretionary income. Discretionary income is defined as a borrower's adjusted gross income (AGI) minus 150% of the poverty level applicable to the borrower's family size.

Borrowers will qualify for the income based repayment plan as long as their calculated annual IBR payment is less than the annual amount due under the Standard Repayment option. Eligibility for the income based repayment plan will be determined annually. The unpaid balance of the loan will be forgiven after 25 years of consecutive income based repayment. Under current tax law, the amount of loan forgiven will be a taxable event.

If your loan payments do not cover the full amount of interest that is charged monthly to your subsidized loan, the government will pay the unpaid interest of the subsidized portion of your loans for 3 years.

Eligible Borrowers
Direct Loan and FFEL Program borrowers who can demonstrate partial financial hardship
Eligible Loans
Direct and FFEL Program Loans except Parent PLUS loans. Graduate PLUS loans ARE eligible.
Payment Amounts
If you qualify, your monthly payment will be 15% of your discretionary income which will be less than the payments required under the 10 year standard repayment plan.
Loan Forgiveness
The federal government will forgive the remaining balance of the loan after you have made 25 years of qualifying payments and meet the other eligibilty citeria.

Visit the Department of Education's Federal Student Aid website for more information.

Pay As You Earn (PAYE) Plan

Only borrowers who have Direct Loans are eligible for PAYE.  This repayment plan is modeled after IBR and eligibility is based on  partial financial hardship.
Eligible Borrowers
Direct Loan and FFEL Program borrowers who can demonstrate partial financial hardship. The loans would have needed to be borrowed from on or after 10/1/2007 who receive new loan on or after 10/1/2011.
Eligible Loans
Direct and FFEL Program Loans except Parent PLUS loans. Direct Consolidation loans that did not pay off any direct PLUS loans that were made to parent borrowers. Graduate PLUS loans ARE eligible.
Payment Amounts
If you qualify, your monthly payment will be 10% of your discretionary income which will be less than the payments required under the 10 year standard repayment plan.
Loan Forgiveness
The federal government will forgive the remaining balance of the loan after you have made 25 years of qualifying payments and meet the other eligibilty citeria.

Visit the Department of Education's Federal Student Aid website for more information.

Income-Contingent Repayment (ICR)

Only borrowers who have Direct loans are eligible for ICR.

Repayment plan based on borrower’s adjusted gross income, family size, and the total amount borrowed through direct Loans. Borrowers who do not qualify for the IBR or PAYE should consider the ICR.

Eligible Borrowers
Direct Loan Borrowers with eligible loans
Eligible Loans
All direct loans, including Graduate PLUS. Parent PLUS Loans are NOT eligible unless it was consolidated into a direct Consolidation Loan on or after July 1, 2006.
Payment Amounts
If you qualify, your monthly payments will be 20% of your discretionary income. Monthly payments can be made for up to 25 years.
Loan Forgiveness
Any remaining balance after 25 years will be forgiven. However, you may have to pay taxes on the amount that is forgiven.

Visit the Department of Education's Federal Student Aid website for more information.

Income-Sensitive Repayment

This plan is for borrowers who have FFEL Loans only and repayment amounts are based on the borrower’s annual income.
Eligible Borrowers
FFEL Loan Borrowers with eligible loans
Eligible Loans
All FFEL loans, including Graduate PLUS and FFEL loan consolidations.
Payment Amounts
Payments can be increased or decreased based on your annual income. The maximum repayment term is 10 years.

Visit the Department of Education's Federal Student Aid website for more information.

Public Service Loan Forgiveness (PSLF)

Borrowers employed in a qualifying public service job can have their remaining loan balance forgiven after making 120 payments under any combination of income-contingent, income-based or standard repayment plans. The public service does not need to be continuous, however, only payments made while employed full-time in public service will count toward the forgiveness plan. You also must be employed in public service and cannot be in default on any federal student loans at the time the balance of the loan is forgiven.

Eligible Loans
The loan forgiveness is available only through the Federal Direct Loan Program. If you have FFEL loans, you will need to consolidate your FFEL federal loans into the Federal Direct Consolidation Loan Program to take advantage of the Public Service Forgiveness Plan. The federal Stafford loan, federal Perkins Loan and Graduate PLUS loan are eligible for the forgiveness plan. Federal Stafford Loans and Perkins Loans borrowed while in undergraduate or graduate programs are also eligible. However, the Parent PLUS loan (available only to undergraduate students) and Private Loans are not eligible.
Repayment Options
There are many repayment options available through Direct Loan Consolidation. However, only payments made under any one or any combination of the Standard, IBR, PAYE, or ICR repayment options can be used toward the forgiveness plan. Payments made under these repayment plans prior to October 1, 2007 cannot count towards forgiveness. The US Dept of Treasury has determined that the amount forgiven under PSLF will not be considered taxable income. Please Note: Although payments made in the standard repayment plan can be applied to the 120 payment requirement, if you plan to work in the public interest job for 10 years, it will be of no benefit to remain in the standard repayment program for the full ten years, since there will be no remaining balance for the government to forgive after you have made 120 payments.
Application Process
You technically cannot apply for forgiveness until you have completed the required 120 payments. But, you can complete and submit an Employer Certification for Public Service Loan Forgiveness Form to the Department of Ed so that they can keep track of your progress towards forgiveness. It is recommended that you submit the form annually or whenever you change employment. Otherwise, you will be required to submit the forms for all of the employers that you worked for throughout the time you were making loan payments at the time that you apply for forgiveness.

Visit the Department of Education's Federal Student Aid website for more information.

Barrack Public Interest Fellowship Program

Temple Law School offers a loan repayment assistance program for graduates entering public interest careers. The Barrack Public Interest Fellowship Program "lends" eligible graduates funds to help in repaying their loans, and that loan is then forgiven based on the graduates continued employment in an eligible public itnterest position. Visit the program page for more information.