Higher education today is more expensive than it has ever been. In the current school year, tuition and fees at private 4-year schools rose 4.4% to an average $26,273, according to a December 2009 survey released by the College Board. Charges at public 4-year universities spiked over 6% for both in-state and out-of state students, to $7,020 and $18,548, respectively. The number of student loans is also up. Total borrowing for college increased 5% between the 2007-2008 and 2008-2009 school years, the most recent for which data is available.
In addition, the high school graduating class of 2009 was the largest in history, creating a very strong sellers market for higher education. The net effect is that graduating college students are increasingly entering the real world with overwhelming student loan debt.
If your student loan came from the federal government, there are flexible repayment plans to help you manage this important financial responsibility.
- Standard Repayment Plan: You pay a fixed amount of at least $50 each month for up to 10 years.
- Graduated Repayment Plan: Your payments start out low at first and increase every two years. You must repay your loan in full within 10 years. At a minimum, your payments must cover the interest that accumulates on your loans between payments. This plan is tailored recent college graduates who expect their incomes to increase in the future. However, you'll ultimately pay more for your loan than you would under the Standard Plan, because more interest accumulates in the early years of the plan when your outstanding loan balance is higher.
- Extended Repayment Plan: Your fixed monthly payment is lower than it would be under the Standard Plan, but you'll ultimately pay more for your loan because of the interest that accumulates during the longer repayment period.
- Income-Sensitive Repayment Plan (for Federal Family Education (FFEL) Loans only): Your monthly loan payment is based on your annual income. As your income increases or decreases, so do your payments. The maximum repayment period is 10 years.
- Income-Contingent Repayment Plan (for Direct Loans and Direct PLUS Loans): Your monthly payments will be based on your annual income (and that of your spouse, if married), your family size, and the total amount of your Direct Loans. Borrowers have 25 years to repay under this plan, the unpaid portion will be forgiven. However, you may have to pay income tax on the amount that is forgiven.
- Income-Based Repayment (IBR): Under this plan, your required monthly payment amount will be based on your income during any period when you have a partial financial hardship. Your monthly payment amount may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you repay under this plan and meet certain other requirements over a specified period of time, you may qualify for cancellation of any outstanding balance on your loans.
