Repaying Stafford Loans

If you understand your payment options, you're more likely to quickly, efficiently, and successfully repay your Stafford Loan. The path to good credit starts with understanding your options.

From grace periods to repayment time options, it's important to know the details of your Stafford Loan repayment plan. Educating yourself about this popular Federal loan gives you more power to plan your financial future.

Your Personalized Stafford Loan
There are two ways to receive your Stafford Loan, and the type you received greatly affects how you repay the loan. The Federal government pays the interest on a subsidized Stafford Loan both while you are in school and during the six-month grace period that begins when you graduate or leave school for any reason. If your Stafford Loan is unsubsidized, on the other hand, you can either pay interest while you're in school, or allow it to accumulate and be capitalized (added to your loan principle). Paying off your unsubsidized Stafford Loan's interest early may help you save money in the long term.

Possible Stafford Loan Repayment Plans
The interest rate for all Stafford Loans is fixed at 6.8% as of July 1, 2006. The following Stafford Loan repayment options should be explained to you during exit counseling:

• Standard Repayment: This option comes with a $50 minimum monthly repayment and a ten-year repayment period.
• Graduated Repayment: The repayment period is also ten years with this option, but payments start lower and gradually increase.
• Income-Sensitive Repayment: The monthly payment is based on your loan's remaining balance as well as your yearly income.
• Extended Repayment: If you owe over $30,000, this plan allows you to extend your repayment period to 25 years.

Don't Default on Your Stafford Loan
If you're concerned you won't be able to make your loan payments on time, contact your lender before your Stafford Loan goes into default. Stafford Loans sometimes include provisions for deferment or forbearance options that temporarily reduce or postpone your payments. Part of your loan can be deferred or cancelled if you work as a teacher in certain areas, or in the armed forces or Peace Corps. Talk to your school's financial aid office for more details on loan deferment or cancellation.

Prioritize Repayment
If you have debt in addition to your Stafford Loan, it's particularly important to prioritize your loan repayment plan. You should typically try to repay debts with higher interest rates more quickly. If possible, make more than the minimum payment each month, and you'll save money by repaying high-interest debt more efficiently.