Borrowers usually must begin repaying their education loans 6 months after they graduate, although they may be able to postpone repaying if they are enrolled in postsecondary education at least half time, are unemployed, are participating in a qualifying service program (e.g., volunteering in the Peace Corps), or have an approved medical or economic hardship.³ The standard repayment period for Stafford loans is 10 years, but alternative repayment options—graduated, extended, income-based—are available to some, depending on the specific loan program and amount borrowed. These alternatives reduce the monthly payment in the early years, but increase total interest charges. One option is for borrowers to consolidate their loans and obtain a fixed rate as well as extend the repayment period. When interest rates are low, as they are now, students who exercise this option can save substantial amounts over the life of the loan.

Just under two-thirds of the borrowers in each cohort were repaying their loans a year after graduating (table 10). Because 1999–2000 graduates had borrowed more, on average, than their 1992–93 counterparts, they also had larger average monthly loan payments a year later ($210 vs. $160 per month in constant 2001 dollars) (tables A and 11). A comparison of the payments relative to the amounts borrowed for the two cohorts suggests that the later cohort had more favorable repayment terms a year after they graduated: the average amount borrowed increased by 60 percent, but the average monthly payment increased by 30 percent.⁴ For the later cohort, lower interest rates helped to keep monthly payments down. Interest rates on Stafford loans disbursed before 1992 were fixed and ranged from 8 to 10 percent (although borrowers were permitted to convert them to variable rates later). Interest rates are now variable; they are set annually on July 1 and cannot exceed 8.25 percent. In 2001, the interest rate on Stafford loans was between 6 and 7 percent, depending on the date of the loan.⁵

The later cohort also benefited from higher salaries, even after adjusting for inflation. The 1999–2000 graduates had an average salary of $34,100 in 2001, compared with an average of $28,300 (in constant 2001 dollars) for 1992–93 graduates in 1994 (tables A and 13).