Repaying Stafford Loans

Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. To successfully repay your Stafford Loan, you need to understand your options.

Types of Stafford Loans
The type of Stafford Loan you have can affect your repayment. If your loan is subsidized, the government pays the interest while you are in school and during your six-month grace period. If your loan is unsubsidized, you must either pay the interest while you are in school and during your grace period, or allow it to be capitalized (added to your loan principle). As of July 1, 2006, the interest rate for all Stafford Loans is fixed at 6.8%.

If you leave school for any reason, or drop below half-time enrollment status, your Stafford Loan's grace period begins immediately. Regardless of what type of Stafford Loan you have, you have up to six months to begin repaying the loan.

Stafford Repayment Plans
During your exit counseling, the following Stafford Loan repayment options should be explained to you:

• Standard. With this plan, the minimum monthly repayment amount is $50 and the maximum repayment period is 10 years.
• Graduated. The amount of the payments gradually increases over time. Typically, the maximum repayment period is also 10 years.
• Income sensitive. The amount of the monthly payments for this plan is based on both the loan amount and your yearly income.
• Extended. 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.

Financial Difficulties
If you have trouble making your loan payments, you should contact your lender for more options before you allow your load to go into default. With a Stafford Loan, you might be eligible for an income-based deferment or forbearance to temporarily reduce or postpone your monthly payments. There are a variety of cancellation options, depending on what fields you work in and where you work. Contact your lender for an explanation of these options. Defaulting on a loan can seriously affect your credit and should only be a last resort.

Prioritize Your Payments
In most cases, you want to pay off your loans with the highest interest rates as quickly as you can. Remember that the longer it takes you to pay off your loans, the more interest you end up paying. Therefore, you should try to pay more than the minimum payment each month to eliminate your debt more quickly. If you have more than one type of student loan with different interest rates, you may want to find out if you are eligible for a consolidation loan.