Guide to Federal Student Loan Repayment Programs

The office of Federal Student Aid, a division of the U.S. Department of Education, provides more than $112 billion in financial aid (the large majority of student loans) each year. They are likely your first stop in funding your education, and in many cases offer the best options (if you qualify) to take out and repay loans for a wide variety of life, financial, and educational backgrounds. If you’re wondering where federal loans come from, check out this overview from U.S. News & World Report.

As a critical budgetary concern within the Department of Education, the Office of Federal Student Aid’s operations are highly regulated and swayed by the economic climate and other factors. Nevertheless, it is a major pathway for millions of students to achieve their higher educational goals.

If you’re one of the 43.5 million borrowers with federal student loans, you have a number of repayment options at your disposal.

Federal student loan repayment programs

Standard and extended repayment

Upon graduation, federal student loan borrowers are granted a six-month grace period before their first loan payment comes due. If no action is taken, they’ll default into the ten-year Standard Repayment Plan. This means they’ll make the same payment every month for ten years, resulting in the loan being completely paid off. Ten years is the shortest standard repayment term offered by the federal government. If borrowers want a longer term, they must meet balance thresholds for their requisite loans, qualifying them for longer term, extended repayment loans. For more information on standard repayment plans, visit studentaid.gov.

Loan consolidation

If you have multiple federal student loans, you can combine them into a single Direct Consolidation Loan to help simplify repayment or to reach the balance thresholds needed to qualify for extended loan terms. Consolidation involves merging your direct loans into a single payment with one servicer, rather than paying several loan servicers. Consolidated student loans often have new terms, such as a lower monthly payment, but can also have a longer repayment period—which could lead to paying more over the life of the loan.

Consolidating loans other than Direct Loans—such as FFEL Program loans or Federal Perkins loans—may give you access to additional income-driven repayment plans or forgiveness options.

Depending on your circumstances, there may be advantages or disadvantages to loan consolidation. For more information on Direct Consolidation Loans, visit studentaid.gov/loan-consolidation.

Public Service Loan Forgiveness

Public Service Loan Forgiveness¹ allows borrowers employed at qualifying nonprofit organizations and government entities to have their Federal Direct Loans forgiven after ten years of qualifying income-driven payments, entirely tax-free. To pursue and qualify for PSLF, you must provide paperwork, including an Employment Certification Form (ECF) filled out by each eligible employer in your work history. You will need to complete an ECF at least annually or whenever you change employers while you’re enrolled in the program. If you have questions about how to qualify for either PSLF or IDR student loan forgiveness, our student loan consultants can help you understand all your options, learn more here. For the most up-to-date information regarding PSLF, go to studentaid.gov/pslf.

Eligibility requirements for PSLF include:

Deferment or forbearance

Deferment is a temporary period when the repayment of principal and interest is delayed, and forbearance is a deferment granted at the lender’s discretion in the event of economic hardship. During forbearance, the interest on both subsidized and unsubsidized loans is accruing and capitalizes every 12 months. As a result, borrowers accrue more interest in each subsequent year that they utilize forbearance. However, forbearance has no impact on a borrower’s credit. Because of the impact on interest and potential loan forgiveness, it might be worth exploring another repayment plan before you consider deferment or forbearance. For more information, go to the Federal Student Aid website at studentaid.gov.

Student loan refinancing

Private student loan refinancing may allow you to take advantage of lower interest rates, or a shorter loan term to potentially reduce the total amount you owe over the life of the loan. The process is simple; borrowers pay off their original student loans—both federal and private—and obtain, if eligible, a new, lower-rate loan with different repayment terms. The refinancing of federal student loans can only be done by moving to a private lender. Note that if you refinance federal student loans with a private lender, you will lose access to federal programs, such as federal forbearance, IDR, PSLF, and any other benefits offered to federal borrowers. Learn more at studentaid.gov.

Each lender has its own criteria for determining eligibility and rates, such as credit history, total monthly debt payments, and income. Read more on the differences between refinancing and consolidation and learn more about Laurel Road’s private student loan refinancing options here.