Choosing the best repayment plan for digging out of student debt

It's estimated that Americans owe more than $900 billion in federal and private loans, and that more than 36 million are saddled with federal student debt, as we note in our report posted today.

Federal loans (Perkins, Stafford, Direct PLUS) offer several repayment options. The standard term is 10 years, and the minimum monthly payment is $50. Stretching out your payments reduces the monthly amount but means higher interest paid over the life of the loan.

If your total debt exceeds your first-year income after graduation, you probably won't be able to afford payments under the standard 10-year plan. If that's the case, consider these repayment options:

• Graduated repayment: Payments start small and increase every two years, which could be a good option for those who expect their income to increase steadily over time.
  
• Extended repayment: If you're at least $30,000 in debt and didn't have a loan before Oct. 7, 1998, you can choose this option, which gives you up to 25 years to repay loans. You can choose fixed or graduated payments.
  
• Income-contingent repayment: Your payments are calculated annually on the basis of your adjusted gross income (plus your spouse's if you're married), family size, and the total amount of Direct loans over a 25-year maximum repayment schedule. After 25 years of payments, any unpaid balance will be discharged, but you might have to pay taxes on it. This option is for Direct loans only.
  
• Income-based repayment: Monthly payment is based on your income (and your spouse's if you file together) and family size, and is adjusted annually. Monthly payments are capped at 15 percent of adjusted gross income and the remaining loan balances after 25 years is forgiven.

Contact your lender immediately if you can't pay. Defaulting will add late fees and collection costs to your balance. For more tips, and advice, including how to handle private loans, see our full report: Student debt grows to alarming levels.

—Maggie Shader