Repaying Your Loans

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Repaying Your Loans

Repayment Begins

Repayment Options

Choosing a Plan

The Direct Loan Servicing Center

Repayment will be simple, because the U.S. Department of Education is your lender and will remain your lender. Your payments will go to the Department's Direct Loan Servicing Center. Although the Department has several Servicing Center locations (with separate addresses and telephone numbers), you'll always have only one Servicing Center to deal with - even if you take out several Direct Loans or transfer from one school to another.

Once you get a Direct Loan, you'll be notified of your Servicing Center location (the telephone number and address will appear on all correspondence and on all monthly statements you receive.) The Servicing Center than becomes your point of contact for information about your Direct Loans. You must make sure the Servicing Center always has your correct address and telephone number, and you should contact the Servicing Center if you have any questions about, or problems with, loan repayment.

Repayment Begins

Repayment of your loan begins six months after the day you leave school or drop below half-time enrollment. This six-month period is called the "grace period". If you return to school at least half time before the grace period ends, repayment of your loan will again be delayed until six months after you finally leave school.

The first payment on Direct Subsidized and Direct Unsubsidized Loans is due within 60 days after the grace period ends. The first payment on a Direct PLUS Loan is due within 60 days after the final loan disbursement. You'll receive a bill letting you know your monthly payment amount and its due date.

If you have a Direct Subsidized Loan, you don't pay any interest until the grace period ends. If you have a Direct Unsubsidized Loan, interest accumulates on the loan while you're in school and during the grace period. You can either pay this interest as it accumulates or wait until you begin repaying the loan principal (the amount of money you borrowed). If you decide to delay interest repayment, the interest that accumulates will be "capitalized," that is, will be added to your loan principal when you begin repayment. As a result, the total amount you'll have to repay will increase.

Whether you have a Direct Subsidized or Unsubsidized Loan, once repayment begins, you'll pay interest plus the loan principal; therefore, the total amount you repay will be more than you borrowed. You may prepay your loan--that is, pay all of your loan or make a payment larger than agreed upon--at any time without penalty.

Repayment Options

There are four ways you can repay a Direct Subsidized Loan or Direct Unsubsidized Loan. Direct PLUS Loan borrowers may choose only from the first three options given below. Borrowers can choose a plan to fit their financial circumstances and can change plans if their financial circumstances change.

These are the four repayment options:

• The Standard Repayment Plan requires fixed monthly payments (at least $50) over a fixed period of time (up to 10 years). The length of the repayment period depends on the loan amount. This plan usually results in the lowest total interest paid because the monthly payment is higher and the repayment period is shorter than under the other plans.

• The Extended Repayment Plan allows loan repayment to be extended over a period from generally 12 to 30 years, depending on the total amount borrowed. You'll still pay a fixed amount each month (at least $50), but usually your monthly payments will be less than under the Standard Repayment Plan. These lower monthly amounts may make repayment more manageable; however, usually you'll pay more interest because the repayment period is longer.

• The Graduated Repayment Plan allows payments to be low at first and increase generally every two years. Graduated Repayment may be helpful if your income starts out low but will increase steadily. Your monthly payments must be at least half, but may not be more than one-and-a-half, of what you would pay under Standard Repayment. As in the Extended Repayment Plan, the repayment period will vary from generally 12 to 30 years, depending on the total amount borrowed. This extended repayment means your monthly payments may be lower but, again, you'll pay more interest than you would under Standard Repayment.

• The Income Contingent Repayment Plan bases monthly payments on your adjusted gross income (AGI) and the total amount of your Direct Loans. As your income rises or falls each year, your repayment amounts will be adjusted accordingly. Your required monthly payments will not exceed 20 percent of your discretionary income. Discretionary income equals your AGI minus an amount based on the poverty level for your family size, as determined by the U.S. Department of Health and Human Services. You can get more information from your financial aid office. The repayment period for this plan will not exceed 25 years. After 25 years, any unpaid amount will be discharged, but you'll have to pay taxes on the amount discharged. (Remember, this plan is not an option for Direct PLUS Loan borrowers.)

If, because of exceptional circumstances, you can't repay your loans using one of the repayment plans described, you may be able to work out an alternative repayment plan with your Servicing Center. Such a plan would be provided only on a case-by-case basis.

Choosing a Plan

You'll receive more detailed information about repayment options at exit counseling and from the Direct Loan Servicing Center, so you can select the plan that's right for you. You'll be told what your monthly repayment amounts would be under each plan. Once you've selected a plan, the Servicing Center will send you a repayment schedule for all your Direct Loans, listing the plan you selected, your monthly payment amount, and the date your payments will be due. (If you don't choose a plan, you'll be placed in the Standard Repayment Plan.) You can always change your plan later, if you choose. Parents with a Direct PLUS Loan will receive a repayment schedule after the final disbursement of the loan.

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What Happens Next? Postponement

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