Every year, millions of people take out student loans to allow them to be able to afford to undertake a college degree, or to return to school for post graduate studies. There are different types of federal student loans available to students in different situations, and the amount and interest rate will depend on the type of loan awarded (for example federal Stafford Loans and federal Perkins Loans), and the student's personal circumstances (such as whether they are in significant financial hardship, whether they are undergraduate or post graduate and whether they are still their parents' financial dependents).
All student loans have to be repaid, but this does not usually have to start until some time after the student graduates or leaves college, to allow them time to find a job and be able to comfortably afford repayments. This is because most types of student loans will be granted an in school deferment for as long as the loan holder is enrolled at an eligible institution half time or more (even if they proceed onto graduate courses other than the course they first took out the loan to cover), and they also come with a grace period between graduation and the first monthly repayment being due (this stands at nine months if you have a Perkins type loan, six for Stafford type loans).
There are a number of different ways you can agree to pay back your student loans. All of them involve monthly repayments, however the amount of the repayment and how long you will stay in debt for vary depending which option you choose. The simplest repayment schemes are the Standard repayment plan, where you pay a fixed amount of $50 or over a month for up to ten years, the Extended repayment plan, where you pay smaller monthly amounts for a period of up to twenty-five years on loans over $30,000, and the Graduated repayment plan, where you start off with smaller payments which increase every two years up to a ten year maximum period.
There is also Income Based Repayment, and Income Contingent Repayment. Income Based Repayment is where you pay an amount based on what you can afford taking into account how much you earn and the size of your family, and can extend up to twenty-five years.
Income Contingent Repayment or ICR is only available on federal Direct loans. On ICR, your monthly repayments are recalculated annually based on your income and other factors such as how many dependants you have. From this assessment, for that year, you will pay whichever is lower between 20% of your monthly earnings, or the monthly amount it would cost to pay off your loan in twelve years multiplied by a factor (more or less than one) relating to your income.
The longest an ICR plan can go on for is twenty five years. If after twenty five years you have met all repayments and conditions of your ICR plan, any remaining debt will be discharged (though consider that you may still have to pay tax on this amount).
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