Skip to main content

Think about student loan repayment terms

When it comes to repaying your school loans, it's likely that you'll have some repayment options to consider.

Federal loans

If you are paying back a Stafford Loan, you will begin paying back the loan within 6 months of you graduating, leaving school or dropping below half-time enrollment. Repayment on PLUS loans begins within 60 days after the loan is fully disbursed.

A parent PLUS loan borrower whose loans were first disbursed on or after July 1, 2008, may choose to have repayment deferred while the student is enrolled at least half-time and for an additional 6 months after that student is no longer enrolled at least half-time.

A graduate student PLUS loan borrower can also defer repayment while the borrower is enrolled at least half-time and for an additional 6 months after the borrower is no longer enrolled at least half-time. Interest that accrues during these periods will be capitalized if not paid by the borrower during the deferment.

The repayment periods for Stafford and PLUS loans can be anywhere from 10 to 25 years, depending on how much you owe and the repayment plan you choose. The federal government offers several repayment plans, including:

  • Standard plan. Under this plan you have a fixed annual repayment amount paid over a fixed period of time, which can’t exceed 10 years. You’ll pay less interest with this plan than with others.
  • Graduated plan. This plan offers lower payments at the start, then your payments will gradually increase over time as you have more earning power, usually every 2 years.
  • Income-contingent repayment plan. This plan, which applies to direct loans, bases your monthly payments on your annual income (and that of your spouse, if you are married), your family size and the total amount of your loans. You will have 25 years to repay under this plan, then the unpaid portion will be forgiven. However, you might have to pay income tax on the amount that is forgiven. As of July 1, 2009, graduate and professional student PLUS borrowers are eligible to use this plan, but Direct Loan parent PLUS borrowers are not eligible.
  • Extended payment plan. This plan will extend your repayment period up to 25 years if your loans total more than $30,000.
  • Income-based repayment plan. Under this plan, the amount of your monthly payment will be based on your income during any period when you have a partial financial hardship. The repayment period under this plan may exceed 10 years. If you choose to repay under this plan and meet certain other requirements over a period of time, you might qualify for cancellation of any outstanding balance on your loan.

Perkins loans

You’ll have 9 months after graduating, leaving school or dropping below half-time status to begin paying back a Perkins loan. Even though a Perkins loan is a federal loan, you will actually be repaying the loan through your college or university. Your school, or its lender, will provide you with specific payment options.

Deferred payment plan

Under certain circumstances, you may be eligible for a deferred payment plan. This allows you to defer principal and interest payments until graduation. Keep in mind, though, that deferring payments will probably increase your long-term loan costs.

Consolidation

Consolidation is a way of simplifying your loan repayment by combining all of your federal student loans into a single fixed-rate loan. Extending your repayment term may help reduce your monthly payment, but the amount of interest you pay over the life of your loan will increase. In addition, you may risk losing the deferment and forbearance rights of your current federal loans.

Default

If your federal loan goes into default, which means you failed to pay back your loan according to the terms you agreed upon, the following consequences may result:

  • The national credit bureaus might be notified of the default, which means it will negatively affect your permanent credit history
  • You could be ineligible for any future federal aid if you decide to go back to school
  • Your loan payments might be deducted from your paycheck
  • Your state and federal income tax refunds might be withheld and applied toward the amount of money you owe
  • Your loan could be assigned to a collection agency

Private loans

If you have taken out a private loan to pay for your education, your repayment plan will depend on the lender and the amount you owe. Make sure you understand the repayment options available to you when deciding upon a private student loan.

Forbearance

A period during which your monthly loan payments are temporarily suspended or reduced. You may qualify for forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue. Accrued unpaid interest will be added to the principal balance (capitalized) of your loan(s) at the end of the forbearance period, increasing the total amount you owe.

Accrued interest

Interest that has accumulated on a loan but that has not yet been paid.

Capitalization

The addition of unpaid interest to the principal balance of a loan. When the interest is not paid as it accrues during periods of in-school status, the grace period, deferment, or forbearance, your lender may capitalize the interest. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan.

Defer payment

A contract option where the initial payment from the customer (usually due within 45 days of the contract date) is financed on the contract, thus allowing up to 180 days before the customer is obligated to send the first payment to the bank.

Information for Virginia

Change State