Paying Off Your Student Loans

Grace Period

After you graduate, leave school or drop below half-time enrollment, you are entitled to one grace period. During this time – which is typically six or nine months, depending on the type of student loan you receive – you are not expected to make payments.

The interest on subsidized loans is paid by the federal government while in school. On unsubsidized loans, you are responsible for the interest. The unpaid interest is capitalized unless interest is paid during in-school, grace, and deferment periods.

Monthly payments begin the day after your grace period ends.

Repayment Options

Your lender or loan servicer will automatically set up your loan under the standard repayment plan, with fixed minimum payments of at least $50 per month over a 10-year repayment period. You may change your payment plan at least once a year; or at your lender’s discretion, and have the right to pay off all or part of your loan ahead of schedule without paying a penalty or fee.

Standard Repayment Plan

standard repayment schedule lets you pay the same amount each month over a fixed period of time, usually up to 10 years.

Graduated Repayment Plan

If your income is low now, but you expect it to increase steadily over time, this plan may be right for you.

Repayment Plans Based on Income

An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. The department of education offers four income-driven repayment plans:

  • Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan
  • Pay As You Earn (PAYE) Repayment Plan
  • Income-Based Repayment (IBR) Plan
  • Income-Contingent Repayment (ICR) Plan

Extended Repayment Plan

If you need to make lower monthly payments over a longer period of time than under plans such as the Standard Repayment Plan, then the Extended Repayment Plan may be right for you.

Pay as You Earn

This repayment plan is  available to borrowers who:

  • Are a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.
  • Have a partial financial hardship.

If you have not repaid your loan in full after you made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven.

You may have to pay income tax on any amount that is forgiven.


Direct Consolidation Loan allows you to consolidate (combine) one or more federal education loans into a new Direct Consolidation Loan for the purpose of lowering your monthly payment amount or gaining access to federal forgiveness programs.

Consolidation loans are not for everyone. Before choosing loan consolidation, be sure to review all your options.

Keeping Your Loans in Good Standing

The class standing is determined by the number of credits successfully completed:

While a lender can keep the loans it makes, it is important to know that lenders also have the option of selling their loans to a secondary marketer or using a loan service company to collect and track loan payments. Knowing who holds your loan will help you keep in touch with the right people. To find out who your loan servicer is click here. Good communication is the key to successful loan repayment and a clean future credit record. Always open and read your mail and notify your loan holder of any changes in your name, address, telephone number, and graduation date.

The most important thing to do is to contact your lender or loan servicer before any problems arise. If your circumstances change at any time during your repayment period, your loan servicer will be able to help. This will allow you to work together to find a suitable solution.

Failure to repay your student loan for at least 270 days means that the loan is in default and the entire amount of the loan becomes due. In addition, the guarantor may purchase the loan from the lender and capitalize all outstanding interest. Defaulted loans are reported to national credit bureaus and will significantly and adversely affect your credit history. Failure to repay may result in any or all of the following: loss of federal and state income tax refunds, legal action, assessment of collection charges including attorney fees, loss of professional license, loss of eligibility for other student aid and assistance under most federal benefit programs, loss of eligibility for deferments, negative credit reports, and garnishment of your wages.


If you anticipate or are having difficulty making your payments, you can apply for a student loan deferment. A deferment is a temporary period during which no loan payment is due.

You may be eligible for a student loan deferment if you:

  • Remain in or return to school at least half time
  • Study in an approved graduate fellowship program or in rehabilitation training for the disabled
  • Are seeking but unable to find full-time employment (maximum three years)
  • Demonstrate other types of economic hardship (maximum three years)

You must request a deferment and, in some cases, document your eligibility for the deferment by contacting your lender. If you borrowed student loans through several lenders, you must apply for a deferment from each lender. More importantly, you must continue to make your monthly student loan payments until the deferment(s) has been granted. You must also notify your lender or loan servicer if the condition under which the deferment was granted no longer exists. 


If you are not eligible under any of the deferment categories, then you may apply for a forbearance if you are having problems repaying your loan(s). A forbearance is a period of time during which no loan payments of the principal are required. Interest payments can be made or postponed; if postponed, the interest is capitalized and added to the principal. Lenders also may grant a 60-day forbearance for processing a borrower’s request for deferment, forbearance, change in repayment plan, or loan consolidation.

A forbearance is temporary and you must prove to your lender through an application process that you are willing but unable to make payments during a time of financial hardship. In some cases, the lender may agree to accept smaller payments than originally outlined in the disclosure statement instead of no payments at all. As with deferment, you must continue to make your monthly student loan payments until the forbearance has been granted. 

Loan Forgiveness Programs

The federal government can cancel all or part of the education loans of qualified borrowers. A number of states also offer loan forgiveness or assumption programs. These programs are used to promote careers in fields that are underserved or in fields that meet particular community needs. Borrowers may have their federal student loan debt forgiven or assumed for volunteer work, military service, teaching service, or for public service.

In addition, AmeriCorps participants can use their educational awards to repay their student loans and Peace Corps volunteers may receive financial assistance to pursue graduate studies.

Loan Cancellation

A federal loan may be cancelled or discharged if any of the following circumstances occurs: your college closes and you are unable to complete your studies, your college falsely certifies your eligibility for a loan, your college fails to make a refund to the lender when one is due (the amount kept by the college does not need to be repaid), or you become totally and permanently disabled or die.