You’ve Graduated: Now It’s Payback Time

It takes four years, on average, to graduate from most colleges and universities. During that time, students can accumulate a large amount of debt. For most, the degree is worth the burden of paying off student loans long after graduation. However, these questions remain: How should the debt be repaid? Are there any plans that can help make payback easier? What if a student can’t find a job right away?

Several options make it easier to pay off Federal student loans. For example, some plans offer flexible payment schedules. Students applying for a Federal student loan can choose a graduated repayment plan that will allow them to start with lower payments after graduation that increase every two years. This schedule is good for those graduates who are likely to make more money in the workplace as they acquire experience.

Students also have the choice of several types of income-driven repayment plans, which are designed to lower monthly payments. The payments under such plans vary, but generally they are based on a percentage of the graduate’s discretionary income.

A third choice is an extended repayment plan that offers either fixed or graduated monthly payments and allows graduates to extend their loan payment schedules from the standard of 10 years to 25 years.

To save money over the long run, a graduate may opt for the standard repayment plan. It requires a loan to be paid in up to 10 years, but payments are of a fixed amount and interest on the loan is likely to be less under this plan than under some of the other plans.

Deferment or forbearance may also be a temporary option for graduates in a financial bind due to unemployment or other extreme hardship. In select situations, borrowers may qualify for other repayment alternatives through their loan servicers.

Although students are required to repay loans even if they don’t finish their education or are unable to find a job, in certain select circumstances loans are forgiven, canceled, or discharged: Examples include the following: your school closes while you are enrolled; you suffer a permanent disability; or you are a teacher who has taught in a low-income elementary or secondary school for five consecutive years (in this case up to $17,500 of your loans may be forgiven).

For students with multiple loan balances, consolidating different student loans is an option that offers flexibility. The Student Loan Reform Act of 1993 allows different Federal education loans to be consolidated into a direct consolidation loan from the government: the loans are brought together into one loan, with a single monthly payment. This plan offers a variety of repayment terms, and the interest rate of the loan is fixed for the life of the loan.

For more information, contact the Federal Student Aid Information Center at 800-433-3243, or visit online at

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