My Student Loans Are Too High

Q: My monthly student loan payments are too high. What options do I have?

A: If your student loans payments are too high, you have many options!

If you have Direct or FFEL Stafford Loans, you have your choice of repayment plans. And if you cannot afford any payments, you may qualify for a temporary deferment or forbearance that can put your loan payments on hold. Another option is consolidation, which can combine your loans and lower your monthly payments.

If you have private student loans, you may also have your choice of repayment plans.

The important thing to keep in mind is that time is of the essence, so do not wait until you miss a payment! Call your lender or loan servicer immediately to find out what all of your options are.

Federal Student Loan Options: Repayment plans offered for Direct Stafford Loans are generally the same as those offered for FFEL Stafford Loans. However, the Direct Loan program offers an Income-Contingent Repayment plan and the FFEL program offers an Income-Sensitive Repayment plan.

The repayment periods for Stafford Loans vary from 10 to 25 years. When it comes time to repay, you can pick a repayment plan that is best-suited to your financial situation. The following repayment plans will be available to Direct and FFEL Stafford Loan borrowers:

A Standard Repayment Plan with a fixed annual repayment amount paid over a fixed period of time not to exceed 10 years.

A Graduated Repayment Plan paid over a fixed period of time not to exceed 10 years. With this plan, your payments start with a relatively low amount and then increase, generally every two years.

An Extended Repayment Plan with a fixed annual or graduated repayment amount to be paid over a period not to exceed 25 years. If you are a FFEL borrower, you must have more than $30,000 in outstanding FFEL Program loans. If you are a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans. This means, for example, that if you have $35,000 in outstanding FFEL Program loans and $10,000 in outstanding Direct Loans, you can choose the extended repayment plan for your FFEL Program loans, but not for your Direct Loans. Your fixed monthly payment is lower than it would be under the Standard Plan, but you will ultimately pay more for your loan because of the interest that accumulates during the longer repayment period.

Income-Contingent Repayment Plan: Your monthly payments will be based on your annual income (and that of your spouse, if married), your family size, and the total amount of your Direct Loans. Borrowers have 25 years to repay under this plan, the unpaid portion will be forgiven. However, you may have to pay income tax on the amount that is forgiven.

As of July 1, 2009, graduate and professional student PLUS borrowers in the Direct Loan program are eligible to use the ICR plan. Direct Loan parent PLUS borrowers are not eligible for the ICR repayment plan.

Visit www.direct.ed.gov for more information for Direct Loan Income Contingent Repayment Plans.

Income-Sensitive Repayment Plan (FFEL Loans): With an income-sensitive plan, your monthly loan payment is based on your annual income. As your income increases or decreases, so do your payments. The maximum repayment period is 10 years. Ask your lender for more information on FFEL Income- Sensitive Repayment Plans.

Income-Based Repayment: This new repayment option (the income-sensitive repayment plan in the FFEL program and the income-contingent repayment plan in the Direct Loan program will continue to be available to borrowers) is available as of July 1, 2009, to all FFEL and Direct Loan borrowers who have a partial financial hardship, except for FFEL or Direct Loan parent PLUS Loan borrowers or a FFEL or Direct Loan Consolidation Loan borrowers, who repaid parent PLUS loans through the Consolidation Loan.

Under this plan, your required monthly payment amount will be based on your income during any period when you have a partial financial hardship. Your monthly payment amount may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you repay under this plan and meet certain other requirements over a specified period of time, you may qualify for cancellation of any outstanding balance on your loans. Contact the Direct Loan Servicing Center (for Direct Loans) or your FFEL lender (for FFEL Program loans) for more information about the Income-Based Repayment Plan.