


Repayment Plans
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There are four main repayment plans for Federal education loans,
consisting of Standard Repayment and three alternatives. Each
of the alternatives has a lower monthly payment than Standard
Repayment, but 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.
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 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.
 IncomeContingent 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
writeoff 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.
 IncomeSensitive Repayment.
As an alternative to income contingent repayment, FFELP lenders offer
borrowers
incomesensitive repayment, which pegs the
monthly payments to a percentage of gross monthly income. The loan
term is 10 years.
 IncomeBased Repayment.
The College Cost Reduction and Access Act of 2007 introduced
incomebased repayment as a more generous alternative to
incomesensitive and incomecontingent repayment, starting on July 1,
2009. Unlike incomecontingent repayment and incomesensitive
repayment, it is available in both the Direct Loan and FFEL programs.
Incomebased repayment is like income contingent
repayment, but caps the
monthly payments at a lower percentage of a narrower definition of
discretionary income.
All six plans are available for student loans, but only the first
three plans are available for parent loans.
Loan Term for Extended/Graduated Repayment
For extended and graduated repayment, the following chart shows how the
maximum loan term depends on the amount borrowed.
Loan Balance
 Maximum Loan Term

Less than $7,500 
10 years 
$7,500 to $9,999 
12 years 
$10,000 to $19,999 
15 years 
$20,000 to $39,999 
20 years 
$40,000 to $59,999 
25 years 
$60,000 or more 
30 years 
There is a variation on extended repayment in the FFEL
program that provides a repayment term of up to 25 years, not 30
years, if you have more than $30,000 in loans with a single
lender. This 25year extended repayment plan does not require you to
consolidate your loans.
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 30year 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 
Reduction in Monthly Payment 
Increase in Total Interest Paid 
Extended Repayment  12 years 
12% 
22% (factor of 1.22) 
Extended Repayment  15 years 
23% 
57% (factor of 1.57) 
Extended Repayment  20 years 
34% 
118% (factor of 2.18) 
Extended Repayment  25 years 
40% 
184% (factor of 2.84) 
Extended Repayment  30 years 
43% 
254% (factor of 3.54) 
Graduated Repayment 
50% initial payment 38% average reduction 
89% (factor of 1.89) 
Income Contingent Repayment (Salary = initial debt, 4% annual raise) 
41% declining to 33% 37% average reduction 
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 
Monthly Payment 
Total Interest Paid 
Standard Repayment  10 years 
$230.16 
$7,619.31 
Extended Repayment  20 years 
$152.67 
$16,639.74 
Difference 
$77.49 reduction 
$9,020.43 increase 
Repayment Plan Calculators
FinAid offers several calculators for evaluating the tradeoffs of
different repayment plans.
 The Loan Payment Calculator
may be used to calculate what your monthly payments would be under the
standard and extended repayment plans.
 The
Loan Comparison Calculator
is like the loan payment calculator, but allows you to compare three
loans side by side.
 The Income Contingent Repayment Calculator
may be used to calculate an estimate of what your monthly payments
would be under income contingent repayment plans, and compares the
total payments with the standard and extended repayment plans.
 The Undergraduate
Master's
and Doctoral
student loan advisor calculators provide an estimate of the debt the
student can reasonably afford, given the expected starting salary for
their field.
 The
Parent Loan Advisor
provides parents with an estimate of the amount of educational debt
they can afford for their children's education, given their current
salary and other debt obligations.
 The
Cost of Interest Capitalization
calculates the additional cost over the lifetime of a loan if a
student capitalizes the interest of an unsubsidized Stafford loan
during the inschool period.
 There are also other loan calculators in the
Calculators section of FinAid, including a
Loan Analyzer that does
a detailed comparison of the financial impact of various loan
features, including loan fees, interest rates, repayment terms,
interest capitalization, and prompt payment incentives.

