Loan-Repayment Options

Level repayment
Most federal education-loan borrowers choose this option, which also is known as the standard repayment plan. This option provides a fixed monthly payment of at least $50 over a period of up to 10 years. This option typically is the least expensive in terms of total interest costs.

Graduated repayment
Under this plan, the monthly payment starts low and increases over time. Graduated repayment may be a good choice for borrowers who currently have limited income but expect higher earnings in the future. Unless borrowers consolidate several federal education loans, the maximum repayment term under this option is 10 years. Total interest costs will be higher under this option than they would be with level repayment.

Income-sensitive repayment
This plan offers flexibility in that payments can be adjusted up or down annually to account for changes in a borrower's income. The minimum payment must be enough to cover accruing interest, however. The repayment period of 10 years can be extended to 15 years under a special forbearance provision. Total interest costs will be higher with this option than with level repayment.

Extended repayment
This relatively new option is available only to borrowers who did not have a balance on a Federal Family Education Loan Program (FFELP) loan as of Oct. 7, 1998, or at the time they received an FFELP loan after Oct. 7, 1998. In addition, extended repayment is available only to borrowers with outstanding education-loan balances of more than $30,000. Under this plan, borrowers can reduce the amount of the monthly payment by spreading payments over a period of up to 25 years. Borrowers may choose to make payments over this extended period under a level or graduated schedule. Because payments are stretched over a longer term, total interest costs will be significantly higher than under the other repayment plans