Repaying Stafford Loans

Your Stafford Loan details are important when it comes time to repay the loan. Understand your options and you'll be on track to successfully repay your loans.

As part of the Stafford Loan program, your educational institution participates in either the Federal Family Education Loan (FFEL) Program, where the lender is a bank or credit union or the William D. Ford Federal Direct Loan (Direct Loan) Program, where the Federal government is the lender.

Types of Stafford Loans
The details of your Stafford Loan are important to your repayment plan. If your Stafford loan is subsidized, the government begins to pay your loan's interest while you are in school and covers it through your six-month grace period. If your loan is unsubsidized, you have a choice. You can either pay interest on the loan while you are in school and during your grace period, or allow it to be capitalized (added to your loan principle). Paying interest early will save you money in the long-term, but is an additional stress while you are in school. As of July 1, 2006, the interest rate for all Stafford Loans is fixed at 6.8%.

If you drop below half-time enrollment status for any reason, your Stafford Loan's repayment grace period begins immediately. You'll have up to six months to begin repaying the loan, regardless of the type of Stafford Loan you have, and regardless of your employment situation at the end of that grace period.

Stafford Loan Repayment Plans
During your Federally-mandated exit counseling, you'll get information on Stafford Loan repayment options. The following repayment options are available:

• Standard Repayment: With this ten-year plan, the minimum monthly repayment amount is $50.
• Graduated Repayment: The payment amount starts at $50 but gradually increases over the course of this ten-year payment plan.
• Income-Sensitive Repayment: The monthly payments for this repayment plan are based on your loan amount along with your yearly income.
• Extended Repayment: If you received your first loan after October 7, 1998 and owe over $30,000, this plan allows you to extend your repayment period up to 25 years.

If You Have Trouble Repaying Your Loan
Contact your lender if you have problems making loan payments on time. You need to learn what you can do before your loan goes into default. Your personal income and asset details may make you eligible for an income-based deferment or forbearance. Both plans either temporarily reduce or postpone your monthly payments, giving you more flexibility without damaging your credit.

A variety of cancellation options may also depend on your employment details. Contact your school's financial aid office or your lender for more details and an explanation of these options. Remember, defaulting on a loan can seriously affect your credit.

Pay Down Your Debt
The longer it takes you to pay off your loans, the more interest you'll end up paying in the long-term. You should try to pay more than the minimum payment each month, and pay off your loans with the highest interest rates as quickly as you can. If you have multiple student loans carrying different interest rates, a consolidation loan could mean one monthly payment.