Direct Loan repayment
Students and parents who have borrowed Federal Loans are required to repay the amount of funds borrowed, with interest, according to the terms of the promissory note that was signed. Loans are legal obligations of which you are subject to all terms and conditions.
Grace period and repayment begin date
After you graduate, leave school, or drop below half-time enrollment, your Federal Direct Stafford Loans enter a 6 month grace period. When the grace period ends, your loans enter repayment.
(NOTE: Student borrowers may also defer Federal Graduate/Professional PLUS Loan repayment for 6 months after ceasing at least half-time enrollment.)
Loan Servicer
The servicer is the agency responsible for billing and collection of your loan. Federal Direct loans are serviced by one of five servicing agencies. The National Student Loan Database (NSLDS) provides details of your Federal loans, including the agency your loans have been assigned to for servicing. Visit http://www.nslds.ed.gov to view your Federal loan history and determine your loan servicer.
Approximately two months prior to the first payment due date, you will receive a notice to select a repayment plan. The repayment plan selected will determine your monthly payment and the total amount you will repay over the life of the loan.
Prepayment
There is no penalty for prepayment of your Federal Direct Loans.
Repayment Plan Options
Federal Stafford Loans and Federal PLUS Loans Federal Stafford Loans and Federal PLUS Loans offer varied repayment plan options.
Standard - Fixed monthly payments of at least $50 over a maximum 10 year period. If you do not notify your servicer, the standard repayment plan is the default plan. Monthly payments under the standard plan will be higher, but you will pay the least in interest over the life of the loan.
Click here for repayment calculator: http://www2.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlentry1.html
Graduated – Monthly payments which gradually increase every 2 years for up to 10 years; minimum monthly payment of $25. This repayment option may lead to higher interest costs over the life of the loan.
Click here for repayment calculator: http://www2.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlentry1.html
Extended – Monthly payments of at least $50 for up to 25 years. To be eligible for this plan, your Direct Loan balance must be greater than $30,000; plan available in standard or graduated payments. This plan offers a lower monthly payment than the standard plan, but will lead to higher interest costs over the life of the loan.
Click here for repayment calculator: http://www2.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlentry1.html
Income Contingent Repayment (or Income Sensitive Repayment under FFELP) –Each year, monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. To participate in the ICR Plan you must authorize the U.S. Internal Revenue Service (IRS) to inform the U.S. Department of Education (ED) of the amount of your income. Under the ICR plan you will pay each month the lesser of:
- The amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
- 20 percent of your monthly discretionary income.
If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized (added to the loan principal). The maximum repayment period is 25 years. If you haven't fully repaid your loans after 25 years, the unpaid portion will be discharged. You may be required to pay taxes on the amount that is discharged
Click here for repayment calculator: http://www2.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlentry2.html
Income Based Repayment - Monthly payment is capped at an amount that is intended to be affordable based on income and family size. This plan is available to borrowers who demonstrate a partial financial hardship. You are eligible for IBR if the monthly repayment amount under IBR will be less than the monthly amount calculated under a 10-year standard repayment plan. Eligibility and minimum monthly payment determined annually.
Click here for repayment calculator: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRCalc.jsp
The maximum repayment period is 25 years. After 25 years, any remaining debt will be discharged, but you may be required to pay taxes on the amount forgiven. Additionally, if you work in public service and have reduced loan payments through IBR, the remaining balance after 10 years in a public service job could be cancelled.
Loan forgiveness after 25 years will be granted as long as the borrower participated in IBR at any time during that period AND did one of the following:
- Made reduced monthly payments on the loan under a partial financial hardship, including a payment of zero dollars
- Made reduced monthly payments on the loan after the borrower no longer had a partial financial hardship or stopped making income based payments
- Made monthly payments under any repayment plan that were not less than the amount required under FFEL or Direct Loan standard repayment plan with a 10-year repayment period based on when the borrower initially entered repayment
- Made monthly payments under the FFEL or Direct Loan standard repayment plan based on a 10-year repayment period for the amount of the borrower’s loans that were outstanding at the time the borrower first selected the IBR plan
- Paid a Direct loan under the income contingent repayment plan
- Received an economic hardship deferment on an eligible loan
The IBR program is best for students who will be pursuing public service careers and borrowers with high debt and low income.
Additional details of Income Based Repayment: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp