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February 16

Repayment Plans

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      There are many ways to repay your loans but here, you will find six which are the better.

      The repayments available for student loans are:
      -   Standard Repayments
      -   Extended Repayments
      -   Graduated Repayments
      -   Income Contingent Repayments
      -   Income Sensitive Repayments
      -   Income Based Repayments

      The repayments available for parent loans are:
      -   Standard Repayments
      -   Extended Repayments
      -   Graduated Repayments

      In either case, the most expensive is the Standard Repayment, however, the other ones have lower monthly payments, but with longer terms that increase the amount of interest repaid over the loan.

*   Standard Repayments:
      Monthly amount payments; as minimum $50.
      10 years of loan term; but according to the borrowed amount could be shorter.

*   Extended Repayments:
      Similar to the Standard Repayment plan.
      12 to 30 years of loan term, according to the borrowed amount.
      It is possible to extend the terms to reduce the amounts, but this aggravates the total amount repaid of the loan.

*   Graduate Repayments:
      Totally different to the Standard and Extended repayment plans.
      Start with lower amount payments, and while time pass the amount increases every two years.
      12 to 30 years of loan term, according to the borrowed amount.
      Monthly payments must be between 50% and 150% of monthly payment the under standard repayments plan.
      The monthly payment must be at least $25.

*   Income Contingent Repayments:
      Available for Direct Loan borrowers.
      The amount of the monthly payments is established according to the changes of the borrower incomes.
      The amounts depend on the borrower's income and the total borrowed amount.
      25 years of loan term, once finished it any remaining balance will be discharged under current law.
      At least, $5 of monthly payments.

*   Income Sensitive Repayments:
      Offered for FFELP lenders.
      Monthly payments are a percentage of the monthly income.
      10 years of loan term.

*   Income Based Repayments:
      A better alternative among income-sensitive and income-contingent repayment.
      Available for both, Direct Loan and FFELP programs.
      More similar to income contingent repayments.
      Lower percentage in monthly payments.

      Also, is possible to prepay your loans with no penalties. But is not recommendable to prepay a loan that is in the income contingent repayment plan.

      In addition, if you want to switch your plan you can do it once a year; but when you have the extended repayment during 26-30 years long, you cannot change to the income contingent repayment.

      In order to give more clearance, in the chapter below you will find a comparison among the plans;

Repayment Plan and Loan Term Reduction in Monthly Payment Increase in Total Interest Paid
   Extended Repayment - 12 years 12% 22% (factor of 1.22)
   Extended Repayment - 15 years 23% 57% (factor of 1.57)
   Extended Repayment - 20 years 34% 118% (factor of 2.18)
   Extended Repayment - 25 years 40% 184% (factor of 2.84)
   Extended Repayment - 30 years 43% 254% (factor of 3.54)
   Graduated Repayment 50% initial payment 38%
average reduction
89% (factor of 1.89)
   Income Contigent Repayment
   (Salary=initial debt, 4% annual raise)
41% declining to 33% 37% average reduction 178% (factor of 2.78)

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