Payback Time: Facing Student Loans

It takes four years, on average, to graduate from most colleges and universities. During that time, students can amass some hefty debts. For many people, the degree is worth the burden of accumulated debt. However, these questions remain: How should the debt be repaid? And, are there any plans that can help make “payback” easier?

Today, there are plans available that offer flexible payment schedules. Students applying for a Federal student loan now can choose a graduated repayment plan that will allow them to make smaller payments upon graduation and larger payments at a later time when they may be earning more money in the working world.

Students also have the choice of an income-contingent repayment plan. This plan requires them to pay a fixed percentage of their postgraduate income above the poverty level of a single person, which is $11,880 (Department of Health and Human Services, 2016), toward their student loan. 

A third choice is an extended repayment plan that offers monthly payments and allows graduates to extend their loan payment schedules up to 25 years.

Consolidation Offers Flexibility

There is also good news for students who are already debt laden. Under the Student Loan Reform Act of 1993, existing loans can be consolidated with a direct loan from the government. This plan offers a more flexible repayment schedule while interest rates remain the same.

To be eligible for this plan, student loan recipients need to ask their original lender for an “income sensitive” repayment option. This plan adjusts the monthly payments for the loan’s capital, but not the interest, to annual income. If the original lender will not agree to this option, the student may then be eligible for a direct loan from the government.

Two advantages of a direct government loan are as follows: First, the monthly installment payments of principal and interest are contingent upon income. Because the payments are withdrawn from wages, there will be less paperwork. Second, as wages increase, the percentage withdrawn from pay will also increase, allowing the loan to be paid off more quickly and with less accrued interest.

For students who need to borrow for the current school year, direct loans (and the income-adjusted repayment plan) are also available if they’re attending one of the schools participating in this plan. Parents may also be able to obtain a Direct PLUS loan for up to the entire cost of their children’s college education.

For more information regarding Federal student aid programs, contact the Federal Student Aid Information Center at 800-433-3243, or check them out online at


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