There are a number of options available to repay your federal student loans. The repayment plan chosen will be determined by expected income and future income. You can change between plans every year if necessary, sometimes more often. Contact your lender if you wish to change your federal student loan consolidation repayment plan.

Let’s discuss the repayment plans available for federal student loans.

Standard Repayment Plan

This is the best choice to get your loan paid off as fast as possible and with the least amount of interest. The standard repayment plan will have the best possible interest rate and is usually set up for repayment in 10 years or less. A payment of $50 per month is the minimum payment. For those finding a good paying job right out of college, this is the best option. Borrowers should know that they should not exceed payments of 10-15% of their monthly income. You are most likely in financial difficulty if your monthly payments are 20% of gross income or higher.

The Extended Repayment Plan

This plan offers lower monthly payments but extends them over a longer period of time than the standard plan. This translates into paying more for your education because you will be paying more interest on the loan. Depending on the amount of the loan, with this plan the balance is normally paid off in anywhere from 12-30 years. This repayment plan is only applicable for loans over $30,000 and does not apply for FFEL loans from prior to Oct 7, 1998.

The Graduated Payment Plan

This plan fits people who will start out their working life with a relatively low starting salary with the expectation of getting good salary increases in the future. One begins with smaller payments at first, and these are increased every two years. Payments can be as low as $25 per month, but the payment must cover the interest being earned by the lender on the loan. There are also other restrictions. The payment cannot be less than half of the standard plan and not be greater than 150% of the standard plan.

The Income Based Repayment Plans

There are several repayment plan options that base monthly payments on the amount of income you earn. In general these are recalculated every year, so you need to provide your income information for annual review.

These repayment plans have been devised to encourage people to go into low paying careers like public service. In fact some plans, like the Income Based Repayment Plan (IBR Plan) even have provisions to forgive the remaining student loan debt after 10 years of working in public service. Needless to say this can be a very large benefit.

There are other income based plans including the Income Sensitive Repayment Plan (ICS Plan) for FFEL loans and the Income Contingent Repayment Plan (ICR Plan) for Direct loans. For people on low incomes or incomes that fluctuate, these repayment plans offer the ability to have an affordable debt load. The ICS and ICR plans have provisions such that the loan balance can be written off in 25 years, but that amount is counted as taxable income in the year the loan was dismissed.

Federal student loan consolidation repayment plans have been devised over the years to allow former students to have affordable monthly payments and avoid default. The plans are very flexible and allow for the borrower to change repayment plan fairly often if necessary. Despite this a lot of people owing student loans manage to default causing enormous problems for themselves with their credit ratings which takes them years to repair. It is unfortunate that many young people who borrow money for college are not sophisticated about financial matters and don’t really understand what can happen to them if they take on debt they cannot handle. Borrowers need to know their options with respect to a federal student loan consolidation, to keep their payments current and to make every attempt to get out from under their student loans and get on with the rest of their lives..

One last comment for those wondering: you cannot get out of a federal or private student loan by declaring bankruptcy. Learn more at Student Loan Consolidation.