Federal Loan Repayment Options

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There are six main repayment options for Federal education loans, consisting of Standard Repayment and five alternatives. Each of the alternatives has a lower monthly payment than the Standard Repayment plan; however, this extends the term of the loan and increases the total amount of interest repaid over the lifetime of the loan.

Types of Repayment Plans

The repayment plans are as follows:

  • Standard Repayment: Under this plan you will pay a fixed monthly amount for a loan term of up to 10 years. Depending on the amount of the loan, the loan term may be shorter than 10 years. There is a $50 minimum monthly payment.
  • Extended Repayment: This plan is like standard repayment, but allows a loan term of 12 to 30 years, depending on the total amount borrowed. Stretching out the payments over a longer term reduces the size of each payment, but increases the total amount repaid over the lifetime of the loan.
  • Graduated Repayment: Unlike the standard and extended repayment plans, this plan starts off with lower payments, which gradually increase every two years. The loan term is 12 to 30 years, depending on the total amount borrowed. The monthly payment can be no less than 50% and no more than 150% of the monthly payment under the standard repayment plan. The monthly payment must be at least the interest that accrues, and must also be at least $25.
  • Income-Contingent Repayment. Payments under the income contingent repayment plan are based on the borrower's income and the total amount of debt. Monthly payments are adjusted each year as the borrower's income changes. The loan term is up to 25 years. At the end of 25 years, any remaining balance on the loan will be discharged. The write-off of the remaining balance at the end of 25 years is taxable under current law. There is a $5 minimum monthly payment. Income Contingent Repayment is available only for Direct Loan borrowers.
  • Income-Sensitive Repayment. As an alternative to income contingent repayment, FFELP lenders offer borrowers income-sensitive repayment, which pegs the monthly payments to a percentage of gross monthly income. The loan term is 10 years.
  • 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, 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. Income-Based Repayment is available only for Direct Loan borrowers. Click here for additional information.

No Prepayment Penalty

All Federal education loans allow prepayment without penalty. For loans that are not in default, any excess payment is applied first to interest and then to principal. However, if the additional payment is greater than one monthly installment, you must include a note with the payment telling the processor whether you want your prepayment to be treated as a reduction in the principal. Otherwise, the government will treat it as though you paid your next payment(s) early, and will delay your next payment due date as appropriate. (It is best to tell them to treat it as a reduction to principal, since this will reduce the amount of interest you will pay over the lifetime of the loan.)

Due to the way the income contingent repayment plan treats interest, it is not advisable to prepay a loan in the income contingent repayment plan.

Can Switch Repayment Plans

If you want to switch from one plan to another, you can do so once per year, so long as the maximum loan term for the new plan is longer than the amount of time your loans have already been in repayment. (In other words, if you are in year 26 of a 30-year extended repayment plan, you cannot switch to the income contingent repayment plan and have the remaining balance written off.)

Comparing Repayment Plans

The following table compares each of the major repayment plans with standard ten year repayment. As the table illustrates, increasing the loan term reduces the size of the monthly payment but at a cost of substantially increasing the interest paid over the lifetime of the loan. For example, increasing the loan term to 20 years may cut about a third from the monthly payment, but it does so at a cost of more than doubling the interest paid over the lifetime of the loan. This table is based on the unsubsidized Stafford Loan interest rate of 6.8%.

Repayment Plan and Loan Term
Ext. Repayment - 12 years
Ext. Repayment - 15 years
Ext. Repayment - 20 years
Ext. Repayment - 25 years
Ext. Repayment - 30 years

Graduated Repayment

Income Contigent Repayment (Salary = initial debt, 4% annual raise)

Reduction in Monthly Payment

50% initial payment
38% average reduction

41% declining to 33%
37% average reduction

Increase in Total Interest Paid
22% (factor of 1.22)
57% (factor of 1.57)
118% (factor of 2.18)
184% (factor of 2.84)
254% (factor of 3.54)

89% (factor of 1.89)

178% (factor of 2.78)

For example, suppose you borrow a total of $20,000 at 6.8% interest. The following table shows the impact of switching from standard 10 year repayment to 20 year extended repayment.

Repayment Plan and
Loan Term

Standard - 10 years
Extended - 20 years


Monthly Payment


$77.49 reduction

Total Interest Paid


$9,020.43 increase

Federal Loan Consolidation

To apply for a Direct Consolidation Loan, your loans must be in a grace period or in repayment.

Grace period: Some student loans include a grace period of six or nine months before you are required to begin repaying them. This grace period begins the day after you stop attending school at least half time. For some loan types, the government pays the interest on your behalf during the grace period. Since your grace period ends once a consolidation is complete, you could be waiving (giving up) part of your grace period by consolidating during that time. This waiver is permanent - you can't reverse it.

  • If you have variable interest rate loans, you may be able to obtain a slightly lower interest rate on your consolidation loan if you apply for the consolidation during your grace period. Be sure to check with the Direct Loan Program to see if you qualify for this benefit.
  • If you consolidate during the grace period, you may be able to delay the processing of the consolidation loan until shortly before the end of the grace period, giving you more time to benefit from the grace period when you are not required to begin payment.

You also can consolidate if your loans are in a deferment or default status, but some rules might apply.

  • Deferment: A deferment is a period of time during which your loan holder temporarily suspends your regular payments. If the loans you are consolidating are in an authorized deferment period, the deferment ends the day the consolidation is complete. If you are still unable to make payments at that time, you must reapply for a deferment after you consolidate. In some cases, you may not be eligible for the same types of deferment as you were before consolidation.
  • Default: If the loans you want to consolidate are in default, you must make special arrangements before the loans are eligible for consolidation:
    • Establish a satisfactory repayment arrangement with the loan holder.
    • The William D. Ford Direct Loan Program will set the number of monthly payments you'll be required to make before you can consolidate. The payments must be consecutive, voluntary, on time, and reasonable-and-affordable. A lump sum payment, tax offset, wage garnishment, or court-ordered payment will not count towards the required consecutive monthly payments.

Applying for a Direct Consolidation Loan is a multi-step process that might take four to six weeks to complete. Until the process is complete, you must continue making payments on the loans you wish to consolidate.

Generally, the loan application process works as follows:

  1. Complete a Direct Consolidation Loan Application and Promissory Note and submit it to the William D. Ford Federal Direct Loan Program.
  2. The Direct Loan Program or its servicer will send a Lender Verification Certificate (LVC) to the loan holder(s) listed in your application. The loan holder then completes the form and returns it to the Direct Loan Program or its servicer.
  3. Once the Direct Loan Program or its servicer has all of your LVCs, they will send you a repayment option letter. This letter includes the estimated principal balance, interest rate, and repayment period of your Direct Consolidation Loan. Note: You can cancel all or a portion of your Consolidation Loan at this time.
  4. The Direct Loan Program or its servicer will send payoff funds to your current student loan holder(s).
  5. You will receive a repayment schedule and disclosure statement. This document contains important information such as the consolidation balance and summary of your repayment terms, including your first payment due date. Shortly thereafter, you should receive a monthly billing statement for the Consolidation Loan.
  6. You have 180 days once the consolidation is completed to add any eligible loans you may have missed into the Consolidation Loan. Adding loans may change your repayment term and interest rate.

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