As of today, the government direct loans
offer five different repayment plans. There is a standard
repayment plan, an extended repayment plan, a graduated repayment
plan (which follows similar rules to the extended repayment plan),
an income-contingent repayment plan and an income-based repayment
plan (the newest of the five). Each particular repayment plan has
certain benefits designed to help you decided the best repayment
plan for you.
Standard repayment entails a monthly payment
of at least $50, and is expected to be paid in full within ten
years. This option is generally best for borrowers who have a
solid financial footing. While it does have the highest monthly
payment of the plans, it also allows you to pay off your loan in
the shortest amount of time.
Next, there is the extended repayment plan.
This is a more long-term solution than a standard repayment, in
that the borrower can take up to 25 for repayment. The reason for
this is that extended repayment only applies to debt of $30,000 or
greater. With this type of loan the borrower can choose either a
fixed repayment rate or a graduated repayment.
Graduated repayment changes over time. When
it begins, the monthly payment is at its lowest. From there on,
the rate increases every two year until the loan is paid off.
Income-contingent repayment plans are in
place as a way of safeguarding borrowers who endure economic
hardship. Instead of fixing a single rate over the duration of
the loan, an income-contingent repayment takes into account the
borrowers annual gross income as well as family size. With this
information, the loan is restructured on an annual basis to ensure
that the borrower does not suffer undue economic strife. This
loan can be repaid over the course of 25 years, and if the
borrower is unable to pay it in full over the 25 years the
remainder of the debt is forgiven.
Income-based
repayment follows similar rules to the income-contingent plan.
The key difference is that this repayment must be finished within
10 years. Similar to the income-contingent plan, there is a
possibility of debt forgiveness.