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Repay your Direct Loan

Repay your Direct Loan

Here are a few details about repaying Direct Loans and Federal Stafford Loans:

  • After you stop attending school at least half time, withdraw, or graduate, a 6-month grace period begins. You receive only one grace period per loan.
  • Repayment begins after the grace period ends, with your first payment usually due 45-60 days later.
  • The maximum repayment period ranges from 10-25 years, depending on the repayment plan.
  • Payments are expected each month.
  • The minimum monthly payment is generally $50, but this amount may be different depending on your loan balance and your repayment plan.
  • You may prepay your loan at any time without penalty. Prepayment may substantially reduce the amount of interest you pay.

Repayment plans

Below are brief explanations of the variety of repayment plans available to Direct Loan and Federal Stafford Loan borrowers.

Standard:

  • Minimum monthly payment is $50, but may be higher depending on balance.
  • Maximum repayment period of 10 years

Graduated:

  • Begins with lower payments that increase over time
  • Maximum repayment period of 10 years
  • More interest accrues over the life of the loan because the principal balance decreases at a slower rate.

Income-contingent for Direct Loans:

  • Adjusted payment amount based on gross income and family size
  • Eligibility and payment amount adjusted annually
  • More interest accrues over the life of the loan because the principal balance decreases at a slower rate.
  • If you do not repay your loan after 25 years, the unpaid portion is forgiven. You may have to pay income tax on any amount forgiven.

Pay as You Earn (PAYE) for Direct Loans:

  • Available to new borrowers if:
    • You have no outstanding balance on a Direct or FFEL Program loan as of October 1, 2007 or have no outstanding balance on a Direct or FFEL Program loan when you obtain a new loan on or after October 1, 2007, and you receive a disbursement of a Direct Loan or a student Direct PLUS loan on or after October 1, 2011, or you receive a Direct Consolidation Loan based on an application received on or after October 1, 2011 (unless your loans repaid by the Direct Consolidation Loan make you ineligible because of the criteria in the preceding bullet).
  • You must have partial financial hardship. Your maximum monthly payments will be 10 percent discretionary income, the difference between your adjusted gross income and 150 percent of the poverty line for your family size and state of residence (other conditions may apply).
  • If your monthly payment amount is not enough to pay accrued interest on a Direct Subsidized Loan, the Department of Education will pay the remaining interest for a period of three years.
  • Eligibility and payment amount adjusted annually.
  • More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more money over the life of the loan.
  • Any outstanding loan balance after 20 years is forgiven. You may have to pay income tax on any amount forgiven.

Revised Pay as You Earn (REPAYE) for Direct Loans:

  • There is no income requirement to qualify.
  • Your maximum monthly payments will be 10 percent discretionary income, the difference between your adjusted gross income and 150 percent of the poverty line for your family size and state of residence (other conditions may apply). Your spouse’s income is generally included in the adjusted gross income.
  • There is no payment cap, so your payment may be larger than in other repayment plans.
  • If your monthly payment amount is not enough to pay accrued interest:
    • On a Direct Subsidized Loan, the Department of Education will pay 100% of the remaining interest for a period of three years. After three years, the Department will pay 50% of the remaining interest.
    • On Direct Unsubsidized Loans, the Department will pay 50% of the difference between the monthly payment and monthly accruing interest.
  • Eligibility and payment amount adjusted annually. You must recertify your income each year to remain under the REPAYE plan umbrella.
  • If you are removed from or leave REPAYE, the outstanding accrued interest will be capitalized onto the principal balance.
  • More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more money over the life of the loan.
  • If you make 240 qualifying payments over at least 20 years, any outstanding loan balance after 20 years is forgiven. If you had loans for graduate or professional programs, you must make 300 qualifying payments over at least 25 years. You may have to pay income tax on any amount forgiven.

Income-sensitive for Federal Stafford Loans:

  • Adjusted payment amount based on gross income
  • Payment is the greater of your monthly interest amount or 4 percent of your gross monthly income
  • Eligibility and payment amount verified annually
  • More interest accrues over the life of the loan because the principal balance decreases at a slower rate.

Income-based:

  • Available for payments made on or after July 1, 2009
  • You must have partial financial hardship. Your maximum monthly payments will be 15% of discretionary income, the difference between your AGI and 150% of the poverty guideline for your family size and state of resident (other conditions apply).
  • If your monthly payment amount is not enough to pay accrued interest on a Direct Subsidized Loan / subsidized Federal Stafford Loan, the Department of Education will pay the remaining interest for a period of three years.
  • Payments re-evaluated annually
  • More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more over the life of the loan.
  • Any outstanding loan balance after 25 years is forgiven
    • Very few borrowers will have a remaining balance after 25 years.
    • The amount forgiven may be taxable.
  • Estimate payment under the income-based repayment plan.

Extended:

  • Available to new borrowers on or after October 7, 1998, who have a minimum balance of $30,000 in loans
  • Payment amounts can be either fixed annually or graduated.
  • Maximum repayment term is 25 years
  • More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more over the life of the loan.

If you ever have difficulty repaying your loan, contact your loan holder immediately, as you have options, including a change to your repayment plan, deferment, and forbearance!

Read more about these loans.