Direct Consolidation Student Loan Repayment Plans

Direct Consolidation Student Loan Repayment Plans

StudentLoanDaddy would like to shine light on the Direct Consolidation Repayment Plans, show what they mean to you, and how they affect your loan repayment. Our goal is that you select the best repayment plan for your present situation. You can, at any time during your repayment, change to an eligible repayment plan better suiting your new situation. (Use the StudentLoanDaddy calculator to better evaluate where you currently stand.)

It is imperative that you are in the correct repayment plan, for your present situation, for the life of your loan! Thousands of borrowers are in inappropriate repayment plans, for their current situation. They soon find themselves either in delinquency, or worse – in default. A simple switch to a more suitable plan would avoid this nasty result.

First, there are two general types of repayment plans:

1) Repayment based upon your loan being repaid within a set period.

This type repayment anticipates that your loan will be fully repaid in a set number of months. There are four repayment plans of this type. They are:

● Standard
● Graduated
● Extended
● Extended Graduated

2) Repayment based upon your current income and family size.

These repayment plans are known as Income Driven Repayment (IDR) plans. Income Driven Repayment plans key upon your income and your family size, NOT your Direct Consolidation loan amount. These plans target your ability to pay, for a given year. An IDR plan does NOT target that your loan is repaid within a specified period. You may, in fact, have a payment of $0.00/month and be considered in good standing. This is the beauty of the IDR plans.

One other interesting attribute of IDR plans: It is conceivable that you could remain in an IDR plan for 20, or 25 years, with a payment of $0.00/month, or some other very low payment, for the entire repayment period! This brings up the question of what happens to my loan? This is where Student Loan Forgiveness kicks in. (Please read our blog on Student Loan Forgiveness for the complete story.)

There are three IDR plans. They are:

● Income Based Repayment (IBR)
● Pay as You Earn (PAYE)
● Income Contingent Repayment (ICR)

StudentLoanDaddy contains the exact formulas for each of these seven plans in its calculator. StudentLoanDaddy also calculates your repayment schedule and eligibility for each of these plans based upon your personal situation and your loans, instantly.

More Details on Each Plan

Let’s take a quick look at each of the seven repayment plans. (There are many other details of these plans and their eligibility requirements not addressed here, but inside the StudentLoanDaddy calculator. Please use the SLD calculator for your exact plan.)

Standard

The Standard Repayment Plan calculates your repayment based upon “standard” amortization used in repaying almost any loan in a certain number of months. The more you owe, the longer the repayment period allowed with this plan. This is the default repayment plan if you do not request a different plan. This is also the plan your loan will revert to if you do not provide the required annual documentation of income if you are on one of the three IDR plans.

Here is the allowed time to repay based upon indebtedness with the Standard Repayment plan.

< $7,500 10 years
$7,500 – < $10,000 12 years
$10,000 – < $20,000 15 years
$20,000 – < $40,000 20 years
$40,000 – < $60,000 25 years
$60,000 and above 30 years

Graduated

The Graduated Repayment plan starts with interest only, for the first two years. After that, your payments increase every two years. This plan allows the same period as the Standard Repayment plan for your repayment.

Extended

This plan is designed for those borrowers with more than $30,000 in Direct Student Loan debt. Under this plan you will have up to 25 years to repay your loan. This plan is calculated the same as the Standard Repayment plan, except the term is 25 years.

Extended Graduated

This plan, as the name suggests, is a hybrid of the Graduated and Extended Repayment plans. You must have more than $30,000 in Direct Student Loans to select this plan. You start off at an interest only payment for the first two years, then your payments increase to repay your loan in 25 years.

Income Based Repayment Plan (IBR) (This is an Income Driven Plan.)

This plan requires demonstration of partial financial hardship (PFH). Your monthly payment is primarily based upon PFH and when you borrowed. In order to remain in this plan, you must submit an annual documentation of income to your servicer. StudentLoanDaddy will prepare this document for you. Use the StudentLoanDaddy calculator to see the exact payment, for your situation.

Pay as You Earn (PAYE) Repayment Plan (This is an Income Driven Plan.)

This plan is based upon your income, but is capped at a Standard Repayment plan payment. This plan is also only available for loans taken in a certain period. Use the full calculator inside StudentLoanDaddy for an exact calculation. You must provide annual documentation of income to your servicer. StudentLoanDaddy will prepare this document for you.

Income Contingent Repayment (ICR) Plan (This is an Income Driven Plan.)

This plan’s calculation is probably the most convoluted of all the plans. However, for your purposes, the plan is based upon where you live and your discretionary income. As your income rises, so will your payments under this plan – up to double the Standard Repayment plan payment. This is the ONLY of the IDR plans not requiring demonstration of financial hardship. However, you still must provide annual documentation of income to your servicer. StudentLoanDaddy will prepare this document for you.

Please read our blog on Student Loan Forgiveness, too.