To prepare for repayment, once you know your total debt, use the on-line calculator on your lender’s website or at finaid.org or studentaid.ed.gov, to calculate your monthly repayment for each of your loans.   

Below are the repayment options available to you on your Stafford and Grad PLUS Loans:    

Standard Repayment:  10-year repayment term.  Repayments are in equal amounts each month and include both interest and principal. Costs the least amount in interest over the repayment term, but it is the highest monthly payment.

Graduated Repayment:  10-year repayment term, but payments at the beginning are lower, with the payments gradually increasing every two years.

Income-Sensitive Repayment:  10-year repayment term, but the lender may increase the term to 15 years. Monthly payments are based on the borrower’s expected total monthly gross income and on the amount of the loan debt. Payments are adjusted annually.  Available only on FFELP Loans.

Extended Repayment:  Up to 25-year repayment term, depending on the amount of the loan. This helps those who need more cash for living expenses each month, but it will cost the borrower more in interest over the life of the loan if paid over the 25 year term.

Income-Contingent Repayment:  25-year repayment term. Payments are based on the borrower’s total debt, annual income and on family size. Monthly payments are adjusted every year as the borrower’s income changes.  Any balance remaining at the end of 25 years will be forgiven by the Federal Government. This plan is for Federal Direct Loan borrowers only, not FFELP borrowers.

Income-Based Repayment, if you qualify:  The newest repayment plan is designed for Federal loan borrowers who are experiencing partial financial hardship.  You can qualify for IBR if your annual loan repayment based on the standard ten-year repayment term exceeds 15% of your Adjusted Gross Income (AGI) less 150% of the poverty level for your family size in the state in which you reside.  You can find the poverty level at the Health and Human Services website: www.hhs.gov. 

Steps to follow to calculate an IBR payment:

Step 1: determine 150% of poverty level for your family size in your state
Step 2: subtract that amount from your AGI
Step 3: multiply that times 15% to get your annual loan repayment
Step 4: divide the annual loan repayment by 12 to get your monthly payment    

Here is an example of IBR:
Your AGI is $50,000
The 2011 Poverty Level for a family of 1 = $10,890
$10,890 x 150% = $16,335

$50,000 less $16,335 = $33,665
$33,665 x 15% = $5,049.75 annually.
$5,049.75 divided by 12 months = $421 per month loan repayment

Now, using one of the on-line calculators, compare this monthly repayment to the monthly repayment determined under the standard repayment plan, based on the greater of the amount you owed on your loans when they initially entered repayment or the amount you owe at the time you request IBR. If the $421 per month is less than your monthly payment under the standard ten-year repayment plan, you are experiencing partial financial hardship and eligible for IBR.

Under IBR, if your monthly payment does not cover the interest that accrues on your loans each month, the  Federal Government will pay any unpaid interest on your Subsidized Stafford Loans (either FFELP or Direct Loans) for up to three consecutive years from when you first enter IBR.  After three years and for all other types of loans the unpaid interest that accrues will be capitalized when you are no longer eligible for an income-based repayment amount.  So your balance will increase as a result of this negative amortization.

If and when your AGI becomes high enough that you no longer qualify for IBR, you will have to start repaying the remaining loan balance under the Standard ten-year Repayment Plan.   However, your monthly payment will never exceed the amount you were required to pay under the Standard ten-year repayment term based on the amount of your eligible loans that were outstanding when you entered repayment.  Your repayment period based on this recalculated amount may be more than 10 years. 

If you repay under IBR and meet certain other requirements, any remaining loan balance that you owe will be cancelled after 25 years. 
 
For married borrowers, if they file their Federal taxes as “married-filing separately,” only the adjusted gross income and eligible loan debt of the individual borrower will count for IBR purposes.

See the Federal Student Aid Fact Sheet for a summary of the basic requirements of the Income Based Repayment Plan.  For more detailed information, consult the Department of Education's Income-Based Repayment Program Questions and Answers.

Repayment Incentives
In this current economic climate, lenders are offering very few repayment incentives.  However, some may be honoring the incentives offered when you first took out the loan so be sure to check.  Most lenders still offer the interest rate reduction ( .25%) for automatic debit loan repayments. 

There is an up-front interest rebate on the Federal Direct Subsidized, Unsubsidized and Grad PLUS Loans borrowed after 7/1/10.  The Subsidized and Unsubsidized Direct Loans had a 1% fee, but only .5% was charged to you at disbursement.  The remaining .5% will be charged in repayment if you fail to make your first 12 monthly payments on time.  The Federal Direct Grad PLUS Loans had a 4% fee.  You were charged only 2.5% at disbursement.  The remaining 1.5% fee will be charged if you fail to make your first 12 monthly payments on time. 
 
Lenders/Servicers

• The lender is the holder of your loan.  Lenders usually hire servicers to bill, collect repayments, and process deferments, and perform other repayment related activities.
• Lenders sometimes sell their loan portfolio, in which case the lender/servicer may change, but not the loan terms.
• Lenders are required to provide you with a disclosure statement, detailing the repayment terms prior to repayment beginning.  As a May graduate, if you do not hear from your lender/servicer by mid-June, contact the lender/servicer to be sure it has your current mailing information.  Remember, you are responsible for repaying the loan even if you do not receive a billing statement.
  

Don’t know your Federal Lender(s)?

• To find out the current loan holder(s) for each of your federal loans, log on to: www.nslds.ed.gov.  The National Student Loan Data System is the Department of Education’s central database.  You will need your Federal PIN to enter the database.
• Forgot or lost your PIN?  Request one at: www.pin.ed.gov/PINWebApp/pinindex.jsp.

Deferment of Federal Loans

Deferment is a temporary suspension of your Federal loan repayments. To obtain a deferment, you will need to complete a deferment application--usually 30 days before you want the deferment to start--and submit the necessary documentation to prove that you qualify for the deferment. No interest accrues on the FFELP subsidized Stafford or the Federal Direct Subsidized Loans while the loans are in deferment.  This is not true for forbearance.  Be sure to distinguish between the two. 

General types of Federal loan deferments include:

• At least half-time enrollment in a degree or certificate program at an eligible school
• graduate fellowship
• rehabilitation training for the disabled
• economic hardship (up to 3 years)
• unemployment (up to 3 years)
• active military duty

Forbearance of Federal Loans

Similar to deferment, forbearance is a temporary postponement of loan repayments, but at the discretion of the lender/servicer.  Forbearances are granted up to 12 months at a time, not to exceed a total of three years.  Interest accrues on all FFELP and Federal Direct Loans during forbearance. 

Avoid Delinquency or Default!

A Federal loan that is being repaid becomes delinquent whenever a borrower fails to make a scheduled payment by the due date or fails to comply with other terms of the promissory note. The lender may file a default claim with the guarantor of the loan once the delinquency has continued for 270 days.   If you are having trouble making your education loan payments, call your lender immediately.  Do not be embarrassed to ask for help.   Ask for a deferment; if ineligible, request the income-based repayment option.  As a last resort, ask for a forbearance.   Don't assume that your Federal education loans will be written off--they rarely are.   If you fail to resolve your repayment problems, you could incur additional costs and ultimately suffer the serious consequences of loan default.   Those consequences may be as follows:

• Default is reported to all three major credit bureaus which adversely affects your credit.
• Loans may be sent to a collection agency, resulting in additional collection costs.
• Federal and State income tax refunds may be seized.
• Your wages may be garnished.
• You may be sued and charged attorney fees and the costs associated with collecting the debt.
• Your admission to the Bar may be jeopardized.
  

Loan Repayment Rehabilitation

Rehabilitation is a process by which a borrower may bring a Federal loan out of default by complying with specific Federal requirements.  You must request rehabilitation.  You must then make nine on-time monthly payments in an amount determined by the lender.  Once the required payments are made, you will receive a Rehabilitation Agreement from the guarantor which you must fill out, sign and return in order to complete the rehabilitation process.  Rehabilitation procedures may vary from lender to lender, so check with your lender/servicer for its specific rehabilitation procedures.  Upon completion of the Rehabilitation Agreement, your lender must:

• return your loan account to regular repayment status.
• remove the default from your credit history.

Rehabilitation is a one-time and one-time only opportunity.