• To prepare for repayment, after you know your total debt, calculate your monthly loan repayments. There are online calculators on various websites such as your lender’s website, on www.finaid.org. or studentaid.ed.gov.
• Use the calculators to determine the amount of monthly repayment for each type of loan.

Below are the repayment options available to you.

• Standard Repayment:
  10-year repayment term, repayment in equal amounts each month including both interest and principal. Costs the least amount of interest over the repayment term.
• 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. Size of 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.
• Extended Repayment:
  Up to 25 year repayment term, depending on the amount of the loan. This helps those who need more cash each month but it will cost the borrower more interest over the life of the loan.
• Income-Contingent Repayment:
  25 year repayment term. Payments are based on the borrower’s 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 Direct Loan borrowers only.
• Income-Based Repayment (beginning 7/1/09), if you qualify:
  The newest repayment plan, in effect as of this coming July, is designed for Federal loan borrowers who have economic hardship (economic hardship is defined using not only the level of income of the borrower but also the amount of loan debt). IBR limits the size of the monthly payment required on the borrower’s Federal loans.
  
  You can qualify for IBR if your annual loan repayment based on the standard 10-year repayment schedule exceeds 15% of your AGI less 150% of the poverty level for the borrower’s family size. You can find the poverty level at the Health and Human Services website: http://hhs.gov
  
  Step 1: determine 150% of poverty level for your family size
  Step 2: subtract that amount from your AGI
  Step 3: multiple that times 15% to get annual loan repayment
  Step 4: divide annual loan repayment by 12 to get monthly payment
  
  Here is an example:
  Your AGI is $40,000
  The 2009 Poverty Level for family of 1 = $10,830
  $10,830 x 150% = $16,245
  
  $40,000 less $16,245 = $23,755
  $23,755 x 15% = $3,563 annually.
  $3,563 divided by 12 months = $297 per month loan repayment
  
  Now, compare this monthly repayment amount to the monthly amount determined under the standard repayment term using one of the online calculators. If the $297 per month is less than your monthly payment under the standard repayment plan, you are eligible for IBR.
  
  After 25 years of payments under IBR, the Federal Government will forgive any remaining outstanding balance.
  
  Because the payments under IBR are low, it may be that the repayment plan may not cover all of the interest that accrues each month on your loans, i.e., negative amortization. The interest that isn’t covered by the monthly pay- ments will be capitalized - added to the principal.
  
  The Federal Government will pay any unpaid interest on your Subsidized Stafford Loan for the first 3 years. Then any remaining unpaid interest will be added to your principal balance. So your balance will increase each year due to 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 under the Standard 10 -year Repayment Plan, and since the principal has been building due to amortization, you may have to pay for longer than the 10 years. However, you will not pay on a monthly basis any amount more than the monthly amount based on the 10-year repayment period when the borrower first joined IBR.
• Note that those under the Income-Sensitive or ICR plans can elect to stay with those plans or select IBR.

REPAYMENT INCENTIVES

• Until recently we would tell you about the various repayment incentives lenders would offer you. These days lenders offer few incentives, but check with them. Lenders of federal or private loans generally still offer automatic interest rate reduction ( .25%) for auto debit - electronic payment of loans.

DEFERMENT OF FEDERAL STAFFORD LOANS

• Postponement of repayments of Federal loans due to unemployment, being a student ½ time or more, or economic hardship. It is an entitlement that you can ask for. No interest accrues on the subsidized Stafford while the loans are in deferment.
• Deferments are generally for 6 months at time, not to exceed a total of 2 years.
• General types of Federal loan deferments include:
  -Full-time/half-time enrollment in an eligible school
  -graduate fellowship
  -rehabilitation training
  -economic hardship
  -unemployment
  -military service
• While you are entitled to a deferment for the reasons given above, deferments do not begin automatically. Before your account becomes past due you must request one and submit documents to prove that you qualify for the deferment.

FORBEARANCE OF FEDERAL GRADUATE PLUS LOANS

• Similar to deferment - a temporary postponement of loan repayments, but at the discretion of the lender/servicer.
• Granted six months at a time, not to exceed a total of 2 years.
• Interest accrues on your loan during forbearance.
• If you take a judicial clerkship after graduation, you can ask your lenders/servicers for forbearance until after the clerkship ends.

CONSOLIDATION

• If a borrower chooses to consolidate one or more of his/her federal loans, doing so creates a new loan with a new fixed interest rate. That new fixed rate is:
• Weighted average of interest rates of loans being consolidated, rounded to the nearest 1/8th of one percent,and capped at 8.25%
• By consolidating, you can extend the repayment term up to 30 years.
• Borrower loses the grace period.
• More interest is paid over the course of repayment
• Unless you are going into the Federal Loan Forgiveness Program (page 13), it may not be advantageous for you to consolidate. Most of you have only fixed-rate loans and by choosing the Extended Repayment Option, you can extend your loan repayment period up to 25 years.