Yet, the worst thing you can do is default especially on a federal student loan. Your credit card score will be lowered, making it difficult if not impossible to get a mortgage. Your wages could be garnished. And, your tax refund withheld. That's the bad news.

The good news is that the government grants a number of repayment options. Depending upon which one you select, you will have between 10 and 25 years to pay off the loan.

We'll cover the Basic Four Options this week and continue our series next week.

Standard Repayment

With the standard plan, you pay a fixed amount each month until your loan is paid in full. Your monthly payments will be at least $50, and you'll have up to 10 years to repay your loans.

Your monthly payment under the standard plan may be higher than it would be under the other plans because your loans will be repaid in the shortest time. That also means you may pay the least interest if this plan is your choice.

Extended Repayment

Here you pay a fixed annual or graduated repayment amount over a period up to 25 years. However, to qualify you must have at least $30,000 outstanding in the Federal Family Education Loan Program (FFEL) or at least $30,000 in federal Direct Loans.

This means, for example, that if you have $35,000 in outstanding FFEL Program loans and $10,000 in outstanding Direct Loans, you can choose the extended repayment plan for your FFEL Program loans, but not for your Direct Loans.

Your fixed monthly payment is lower than it would be under the Standard Plan, but ultimately you pay more for your loan because of the interest that accumulates during the longer repayment period.

This is a good plan if you need to make smaller monthly payments.

$TIP: Remember -- the longer you take to repay your loans, the more interest you will pay.

Graduated Repayment

With this plan, you pay just the interest for up to 4 years. Then your payments gradually increase. Your monthly payment will never be less than the amount of interest that accrues between payments and, you must pay off the loan within 10 years.

If you expect your income to increase steadily over time, this plan may be right for you. Your interest will probably be more than if you go with the Standard Repayment Plan, but less than with the Extended Repayment Plan.

Income Based Repayment

This is a relatively new (2009) repayment plan. Under IBR, the required monthly payment is based on your discretionary income and family size.

It applies to Stafford PLUS and Perkins loans, certain health and nursing loans and some others. Be sure you check to see if your loan is included.

You are eligible for IBR if the monthly repayment amount turns out to be less than the monthly amount calculated under the 10-year Standard Repayment Plan (see above).

If you repay under the IBR plan for 25 years and meet other requirements, afterwards any remaining balance will be cancelled. Even better: If you work in public service and have reduced loan payments through IBR, the remaining balance after 10 years in a public service job is likely to be cancelled.

Public service includes: Serving full time in AmeriCorps or the Peace Corps; full time (any position) employment with a public service organization, such as a federal state, local or Tribal government agency; a position in most public schools, colleges and universities; work in most public libraries, emergency management and law enforcement; and employment with a child or family agency or a non-profit 501©(3).

For Further Information

To help determine which repayment plan to select, take time to use the student loan repayment calculators at:

www.finaid.org  

www.studentaid.ed.gov.