Repayment Plans for Direct Student Loans

You need to repay your Direct Loans. Fortunately, the Direct Loan program offers you several different repayment plans to meet your needs.

The Direct Student Loans are funded by the Department of Education, through your school, and are managed by the Direct Loan Servicing Center. The Direct Loan program gives you the option to select your own repayment plan and you can change to a different plan free of charge whenever you need.

There are five Direct Loan repayment plans for students:

1. Standard Repayment allows you to pay a fixed amount of at least $50 per month for up to 10 years.

If you can pay a higher monthly payment, this is a good plan for you to consider because you will pay off your loans quicker. There is also a 10-year limit on repaying the loan, so you will pay less interest.

2. Extended Repayment allows you 25 years to repay your Direct Loans with two payment options. Your payments can be fixed as with the standard plan where you pay the same amount every month. The other option is graduated payments, where you pay the least monthly amount at the beginning and your monthly payments increase every two years.

In order to qualify for this repayment plan, you must have at least $30,000 in Direct Loan debt, and you must not have an outstanding balance on a Direct Loan as of October 7, 1998.

If you need to make smaller monthly payments, this would be a good choice. Your monthly payments will be lower because you are taking 25 years to pay off the loan rather than 10 years, but you will pay more interest on the loan.

3. Graduated Repayment allows you to start out with lower monthly payments and increase them every two years for up to 10 years. Your payments will increase at a gradual rate and no single payment will be more than three times greater than any other payment.

This plan makes sense if you expect to earn more money over time allowing you to make the larger monthly payments over time.

4. Income-based Repayment (IBR) is a new plan that caps your monthly payment at an amount that is affordable based on your income and the size of you family, when you have a partial financial hardship.

Your monthly payment can be adjusted annually and your repayment plan can go beyond 10 years depending on your situation. If your financial situation gets worse, you may qualify for cancellation of any outstanding balance.

5. Income Contingent Repayment is not available for Parent PLUS loans. This plan was designed to allow you to make your Direct Loan payments but not cause you any financial problems. Every year, your monthly payments are calculated on your adjusted gross income (AGI) of you and your spouse, size of your family, and the total of your Direct Loans.

You have two payment options. You can pay the lesser of either:

 a. 20% of you monthly discretionary income.

b. The amount you would pay if you paid your loan in 12 years times an income percentage factor based on your annual income.

You have 25 years to repay the loan under this repayment plan. If you haven't fully repaid the loan in 25 years, the unpaid amount will be discharged. You may have to pay taxes on the amount that is discharged.