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Repayment Plans: Federal Student Loan Consolidation

Federal Student Loan Consolidation Repayment Plans

What are the repayment plans?

When repaying a Federal Consolidation Loan, you may choose from multiple repayment plans with various terms.

If you consolidate more than one loan type (subsidized, unsubsidized and PLUS) you will have one Federal Consolidation Loan with up to two parts: Direct Subsidized and Direct Unsubsidized (which includes PLUS) Consolidation Loans. Even with up to two parts of each Direct Consolidation Loan, you make only one payment each month.

If you have not chosen a repayment plan, are not required to pay using ICR, and we determine that you currently have other active Direct Loans, we may assign your new Federal Consolidation Loan(s) to the same repayment plan as your active loan(s). If you do not currently have active Direct Loan(s), we may assign your new Federal Consolidation Loan(s) to the Consolidation Standard Repayment Plan. You can change at a later date to other plans for which you may be eligible.

Standard Repayment Plan

Under this plan, you will pay a fixed amount of at least $50 each month for up to 10 to 30 years, based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans.

Graduated Repayment Plan

Under this plan, you will pay a minimum payment amount at least equal to the amount of interest accrued monthly for up to 10 to 30 years, based on your total education indebtedness. Your payments start out low, and then increase every two years. Generally, the amount you will repay over the term of your loan will be higher under the Graduated Repayment Plan than under the Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase. 

Extended Repayment Plan

To qualify for this plan, your Direct Loan balance (your new Federal Consolidation Loan Amount plus other Direct Loans) must be greater than $30,000. Your plan options are:

Fixed Monthly Payment Option - Under this plan, you will pay a fixed amount of at least $50 each month for up to 25 years. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms. 

Graduated Monthly Payment Option - Under this plan, you will pay a minimum payment amount of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase. 

**Extended repayment terms are available to Direct Loan borrowers with no outstanding principal or interest balances as of October 7, 1998 and with more than $30,000 in Direct Loans.

Income Contingent Repayment (ICR) Plan

The ICR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Incomes (AGI), loan balance and family sizes. 

As an alternative to having the Department obtain your (and your spouse’s, if applicable) AGI directly from the IRS, a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ) or a 4506T IRS transcript is acceptable. Monthly payments are adjusted annually to reflect inflation, family size and income.

NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, supporting documentation provided for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount.

Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. In such cases, the unpaid interest is capitalized and added to the principal balance once per year. The amount added to the principal balance will never exceed 10 percent of the original Federal Consolidation Loan amount. Once this capitalization limit has been reached, interest continues to accrue but is not capitalized. The capitalization limit does not apply to interest that accrues during deferment or forbearance.

Under this plan, it is possible you will not make payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income.

Alternative Documentation of Income

Alternative documentation of income is required for Federal Consolidation Loan borrowers if their underlying loans were in the first or second year of repayment when they were consolidated. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.

Income-Based Repayment (IBR) Plan

The IBR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Incomes (AGI), family size, and you must be experiencing a partial financial hardship to initially select this plan. 

As an alternative to having the Department obtain your (and your spouse’s, if applicable) AGI directly from the IRS, you may submit a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ). Monthly payments are adjusted annually to reflect a change in income, a change in family size, or changes to your partial financial hardship status.

NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, supporting documentation provided for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount.

Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. If your payment does not cover all of the interest accumulating monthly on your Direct Subsidized Loans or Direct Subsidized Consolidation Loans, you will not be charged the remaining portion of the interest on those loans for a period not to exceed three consecutive years from the time you begin repayment under the IBR Plan.

Under this plan, it is possible you will not make payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income.

Alternative Documentation of Income

It is recommended that you provide Alternative Documentation of Income with your consolidation application. If you submit the income information with the application and we determine you are qualified for a partial financial hardship, you may be able to start repaying your new consolidation loan under the IBR Plan immediately. Otherwise, we will request that you submit your income information and, until it is received, your initial monthly payment amounts will be based on the Standard repayment plan. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.

 

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What is Alternative Documentation of Income?

A form that is used to accurately identify the income level of borrowers that are requesting to repay or are currently repaying their loan(s) under the Income Contingent Repayment (ICR) or Income-Based Repayment (IBR) Plan. The form is required:

o    for borrowers that are in their first year of repayment;

o    for borrowers that are in their second year of repayment that have been notified that alternative documentation of income is required; or

o    for borrowers that have been notified that the Internal Revenue Service (IRS) is unable to provide the U.S. Department of Education with their (or spouse’s, if applicable) Adjusted Gross Income (AGI)used.

Can I change repayment plans?

Yes. Most borrowers may change repayment plans at any time. However, borrowers who are required to repay under the ICR plan must make three consecutive monthly payments before changing to another plan. There is no limit to the number of times borrowers may change plans.

o    A borrower may change to the ICR plan at any time. After the change, the borrower's repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. 

o    A borrower may change to the IBR plan at any time. After the change, the borrower's repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. If you choose to leave the IBR Plan at any time, your account will be placed on the Standard repayment plan. You cannot change to any plan other than Standard at any time after being on the IBR repayment plan.

o    A borrower may change to another plan as long as the new plan has a repayment term that is longer than the amount of time the borrower has already spent in repayment. The new repayment term is determined by subtracting the amount of time a borrower has spent in repayment from the term allowed under the new plan.