Repaying your student loans
You have many options to choose from in repaying your student loans. Repayment plans can range from 10 years to 30 years. Other plans are based on income, regardless of your indebtedness. The shorter the repayment plan, the less interest you pay on your loans. Deferment and forbearance options are also available if you are unable to pay on your student loans for a period of time. These various repayment options provide borrowers with added flexibility when they are choosing their career path.
In most cases, repayment of your federal student loans begins approximately six months after you graduate. You can access calculators on the Web to see how much you would be paying. For more information on all your repayment options please go to the U.S. Department of Education’s Federal Student Aid Web site.
Some students choose to consolidate their loans before selecting a repayment plan. To learn more about your student loan consolidation options, please review this helpful Consolidation Guide.
Income-Driven Repayment Plans and Public Service Loan forgiveness
Two programs have been created which are of great importance to graduates who have high debts and low incomes, particularly for those who are planning a career in a public interest occupation (government and most non-profit organizations).
Income-Driven Repayment Plans
Loan payments are capped at 10-15% of monthly discretionary income. Discretionary income is defined to be the adjusted gross income of the student (and spouse, if you file jointly) minus 150% of the poverty level for the borrower’s family size. You can learn more about the two most popular income-driven repayment plans on the Federal Student Aid website by clicking on these links: Pay As You Earn and Income Based Repayment.
A single borrower enrolled in Pay as You Earn who owes $100,000 of debt at an interest rate of 6.8% with an adjusted gross income of $40,000 would pay only $194 per month. The payment amount increases as earnings increase. This amount is significantly lower than the standard monthly payment of $1,155. Any loan balance remaining after 20 years of repayment under Pay As You Earn is forgiven.
Public Service Loan Forgiveness (PSLF) Program
Under this program, loans can potentially be forgiven after 10 years of repayment in an income-driven repayment plan. Borrowers who make 120 on-time payments on their Direct Loans while engaged in a full-time public service occupation can request that their remaining loan balance be forgiven. For more information about the Public Service Loan Forgiveness Program, please see PSLF.
Indiana Law also offers a unique Loan Reduction Assistance Program. The program, which provides grants of up to $4,000 to assist graduates as they prepare to take their bar exams and to start their careers, can give students an important financial bridge at a time when the funds are most needed. Read more information about LRAP and our Public Interest Law Foundation.