Five Things to Know About Federal Student Loan Repayment

There are a number of repayment plans available to federal loan borrowers.

There are a number of protections available to help make your federal student loan repayment affordable. 

Will You Be Repaying Private (Nonfederal) Student Loans? Remember, if you borrow private (nonfederal) student loans, your repayment options vary by lender. It’s best to contact your lender directly to learn more. If you have trouble with managing private student loans and need additional help, you can submit a complaint through the Consumer Financial Protection Bureau. You can also check if your state has a designated student loan advocate who can help.

Fact #1: No Student Loan Payments Are Due While You’re in School

While you’re enrolled in school, your federal student loans are in “in-school” status. This means that you don’t have to make any payments on them so long as you’re enrolled at least half-time.  

Depending on what type of loan you have, your loans may accrue interest during this time. Interest will accrue on unsubsidized loans, but not on subsidized loans. 

Paying down interest while you’re in school isn’t required, but it can save you money down the road. This is because any interest that accumulates on your loans while you’re in school will “capitalize” when payment requirements start. Interest capitalization means that unpaid interest is added to the loan’s principal balance, and then interest begins accruing on the new, higher amount. 

Fact #2: You Have Six Months After Leaving School Before Student Loan Payments Are Due   

Right before you leave school, you’ll be required to complete “exit counseling” which is designed to give you the information you need to navigate loan repayment. Your school’s financial aid office will give you the information you need to complete exit counseling. 

When you leave school — whether you graduated or not — your federal student loans move from “in-school” status into a “grace period.” The grace period lasts six months, starting from the last day you were enrolled. If your finances allow it, you can also choose to start making payments earlier. 

As you approach the end of the six-month grace period, you’ll start getting notices from your student loan servicer about starting repayment. A student loan servicer is the company that helps you select a repayment plan and collects your payments on behalf of the federal government. They provide you with all of the information you need to manage your repayment process, so make sure to pay attention to all communications from your servicer.

You can find out who your servicer is through the U.S. Department of Education. 

Fact #3: You Can Make Student Loan Payments Based on Your Income 

There are a number of repayment plans available to federal loan borrowers. Your repayment plan will determine how much you’ll owe each month, and picking a plan that works for you is important. You can also change plans later if your circumstances change.

Repayment plans generally fall into two categories. You can make payments based on how much you owe or how much you earn. 

In repayment plans based on how much you owe, you will repay the full balance of your loan(s) by the end of the repayment period (typically 10 years or 120 payments). The amount you pay each month in these plans can be the same throughout repayment (“fixed”), or steadily increase over time (“graduated”). This is the standard repayment plan used by student borrowers. If you do not elect a different repayment plan, you will be placed in this. 

If you choose a plan where payments are based on your income, your monthly payment amount will be set each year, and will go up or down depending on whether your income has gone up or down in the prior year. This may mean that it will take longer than 10 years to repay your debt. However, any remaining debt you still have after 20-25 years’ worth of payments (depending on the plan) will be forgiven but you may have to pay income tax on the amounts that are forgiven. Forgiveness in these plans may be available after 10 years of payments if you work in a qualifying public service job. Loan forgiveness of public service workers is not subject to taxation. 

Monthly payments in income-based plans will likely be lower than in plans with fixed monthly payment amounts, but you may end up paying more over the entire repayment period. If your income is very low, your payments could be as low as zero dollars per month but unpaid amounts will be added to the total amount that you owe.

When you enter repayment, you will be placed into the “Standard Repayment Plan” unless you select something else. In the standard plan, you’ll pay a fixed amount each month for ten years. Many borrowers find the monthly payments in the standard plan too high. If this is the case at any time during repayment, you can contact your servicer to enroll in a different plan with a more affordable monthly payment.

Use the U.S. Department of Education’s Loan Simulator to explore what different repayment options would mean for your short- and long-term loan federal student loan costs. 

Fact #4: If You’re Struggling, Temporary Payment Pauses Are Available 

If you miss a loan payment and take no other action, your loan will become delinquent. If you continue to miss payments, your loan(s) will eventually go into default. Student loan default has severe financial consequences: the entire loan balance comes due immediately, and collection agencies may garnish your wages and tack on hefty fees. Your credit score will also take a hit, affecting your ability to rent an apartment or buy a house or car.  

You have a number of options to help keep your federal loan in good standing and avoid the consequences of delinquency or default. If you find yourself in a temporary tough financial spot, repayment relief options let you temporarily pause payment requirements. These options — called forbearance and deferment — can be a helpful short-term safety net so you don?t fall behind on loan payments. If, however, you’re facing longer periods of financial hardship, consider enrolling in an income-based plan. 

If you are worried about not being able to make your payment, reach out to your servicer. And if you fall behind, don’t ignore calls or emails from your servicer — they are reaching out to help you get back on track.

Fact #5: There Are Student Loan Forgiveness Options Available 

There are several programs available for borrowers to have their federal student loans forgiven. In addition to forgiveness provided for borrowers in income-based repayment plans (which comes after 20 or 25 years of payments), forgiveness is available for borrowers who: 

  • Work in a qualifying public service job for 10 years, known as public service loan forgiveness or PSLF, 
  • Attended a school that defrauded you or closed before you could graduate, or
  • Died or experienced a total and permanent disability. 

A resource from the Peter G. Peterson Foundation, created with support from The Institute for College Access and Success (TICAS)