Federal student loans have been a central topic of conversation over the past several years. Loan payments and interest were paused at the start of the COVID-19 pandemic and, after being pushed back several times, are set to resume in late summers, 2023.
Throughout the federal student loan pause, there have been conversations about the possibility of student loan forgiveness, with many suggesting President Biden plans to implement broad student loan cancellation.
While the Biden administration is yet to take action on loan forgiveness, it’s likely that many students will still have to pay a large portion of their student loan debt. And as we approach the date when payments resume, it’s important to have a plan for how you’ll pay them off.
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8 Federal Student Loan Repayment Options
The federal government offers eight different student loan repayment plans for federal loans. Some of these repayment plans are available to all borrowers, while others are only available to select borrowers.
|Standard Repayment Plan
|Graduated Repayment Plan
|Graduated, increased every two years
|Extended Repayment Plan
|Fixed or graduated
|Borrowers with more than $20,000 in outstanding loans
|Revised Pay As You Earn Repayment Plan (REPAYE)
|10% of discretionary income
|Forgiven after 20 years for undergraduate loans and 25 years of graduate or professional loans
|Pay As You Earn Repayment Plan (PAYE)
|10% of discretionary income, but never more than you would have paid under the 10-year Standard Repayment Plan
|Forgiven after 20 years
|New borrowers on or after October 1, 2007 with loans disbursed on or after October 1, 2011
|Income-Based Repayment Plan (IBR)
|Either 10% or 15% of discretionary income, but never more than you would have paid under the 10-year Standard Repayment Plan
|Forgiven after 20 or 25 years, depending on when you received your first loans
|Borrowers with a high debt relative to their income
|Income-Contingent Repayment Plan (ICR)
|The lesser of 20% of discretionary income or the amount you’d pay on a 12-year fixed repayment plan, adjusted for income
|Forgiven after 25 years
|Income-Sensitive Repayment Plan
|Based on annual income
|15 years or less
|FFEL Program loans
1. Standard Repayment Plan
The Standard Repayment Plan is the simplest of the payment plans available through the federal government, and the one that borrowers are automatically placed into unless they choose another option.
Borrowers with this payment plan will make fixed monthly payments that will ensure their loans are paid off within 10 years (or between 10 and 30 years for Consolidation Loans).
Borrowers under this payment plan usually end up paying less over time than other plans. Not only does the Standard Repayment Plan help you pay off your loans more quickly, but it evenly distributes your loan throughout the entire repayment term.
Because the repayment period with this plan only lasts 10 years, it’s not a qualifying repayment plan for the Public Service Loan Forgiveness (PSLF) program.
2. Graduated Repayment Plan
The Graduated Repayment Plan is similar to the Standard Repayment Plan in that it guarantees borrowers will have their loans paid off in 10 years (or 30 years, if they have a Consolidated Loan).
Rather than having a fixed payment throughout the entire loan term, payments start low and then increase, usually every two year. This payment plan helps to account for the fact that borrower’s earnings usually start low in their early years after school and then increase over time.
Like the Standard Repayment Plan, the Graduated Repayment Plan isn’t a qualifying repayment plan for PSLF because you have your loans paid off in 10 years.
3. Extended Repayment Plan
The Extended Repayment Plan allows borrowers to pay off their loans in 25 years instead of the standard 10. Borrowers can choose either fixed or graduated payments with this plan, meaning all borrowers can choose a payment structure that works best for their income trajectory.
The Extended Repayment Plan isn’t available to all borrowers. You must have at least $30,000 in outstanding loans to be eligible.
The good news is that because of the long repayment term, the Extended Repayment Plan is a qualifying repayment plan for PSLF. However, because your loans will have more time to accrue interest, most borrowers end up paying more in the long run.
4. Revised Pay As You Earn Repayment Plan (REPAYE)
The Revised Pay As You Earn Repayment Plan (REPAYE) is available to all borrowers and payments are based on a borrower’s income.
Under this payment plan, your payments are limited to 10% of your discretionary income. Payments are recalculated each year based on your annual income and your family size. For married borrowers, both spouse’s income and student loan debt are considered.
REPAYE is a qualifying repayment plan for PSLF. Additionally, if your loans aren’t fully repaid in 20 years for undergraduate loans or 25 years for graduate or professional loans, then your remaining balance will be forgiven.
5. Pay As You Earn Repayment Plan (PAYE)
The Pay As You Earn Repayment Plan (PAYE) is another repayment plan that’s based on a borrower’s income. This one is only available to new borrowers on or after October 1, 2007, and those that have a loan disbursed on or after October 1, 2011.
Under this repayment plan, your payments are set at 10% of your discretionary income, but you’ll never have to pay more than you would have under the 10-year Standard Repayment Plan. Like the REPAYE plan, your payments are calculated each year based on your income and family size.
PAYE is a qualifying repayment plan for PSLF. Additionally, any remaining loan balance after 20 years of repayment will be forgiven.
6. Income-Based Repayment Plan (IBR)
The Income-Based Repayment Plan (IBR) is designed for borrowers who have a high debt relative to their income.
Under this repayment plan, your payments are limited to either 10% or 15% of your discretionary income, depending on when you received your first loans. Either way, your payments are never more than they would have been under the 10-year Standard Repayment Plan.
IBR is a qualifying repayment plan for PSLF. Additionally, any outstanding balance you have after 20 or 25 years, depending on when you first received your loans, will be forgiven.
7. Income-Contingent Repayment Plan (ICR)
The Income-Contingent Repayment Plan (ICR) is available to all borrowers and has payments that are based on a borrower’s income.
Under ICR, your payments are the lesser of 20% of your discretionary income or the amount you would have paid on a repayment plan with a fixed income over 12 years. Like other payment plans based on your income, your payments are recalculated each year.
ICR is a qualifying repayment plan for PSLF. Additionally, any outstanding balance you have after 25 years will be forgiven.
8. Income-Sensitive Repayment Plan
The Income-Sensitive Repayment Plan is only available to borrowers with loans under the Federal Family Education Loan Program. As a result, most borrowers aren’t eligible for this plan.
Under this repayment plan, your monthly payments are based on your annual income, and are set high enough that your loans will be fully paid off within 15 years. FFEL Program loans aren’t eligible for PSLF.
How to Choose a Student Loan Repayment Option?
With so many repayment plans to choose from, it can be difficult to know which is most appropriate for your situation.
First, consider which plans you’re actually eligible for. Not all borrowers qualify for all repayment plans, so it’s important to narrow down those you’re eligible for.
Next, consider your household income and how much you can afford to put towards your loans each month. It can be tempting to use a repayment plan that’s based on your income, since it may result in small payments.
But the downside of income-driven repayment plans is you’ll often take more time to pay off your loans and pay more interest over the long run. And for high-income borrowers, an income-driven plan may even result in higher debt payments than a standard repayment plan.
Of course, despite the longer payment term, some borrowers must rely on an income-driven plan if they can’t afford a higher payment. The good news is no matter how low your payments are, your loans will be forgiven after 20 or 25 years.
A final consideration is whether you’ll be applying for loan forgiveness. The Public Service Loan Forgiveness Program (PSFL) allows borrowers working in public service to have their loans forgiven after 10 years of payments.
However, you won’t be eligible for PSLF if you use the Standard or Graduated Repayment Plan, since your loans will already be gone after 10 years. As a result, if you plan to apply for PSLF, you should choose either the Extended Repayment Plan or an income-driven plan.
How to Change Your Student Loan Repayment Plan?
When you graduate from college, your loans will be assigned to a loan servicer and you’ll have the opportunity to choose a repayment plan. But at some point, you may decide the plan you currently have is no longer best for your situation.
The best place to start if you’re considering changing your repayment plan is by using the Federal Student Aid Loan Simulator. This loan simulator can help you calculate your loan payments based on different repayment plans. You’ll be able to see the short-term and long-term implications of each repayment plan option.
Once you’ve decided on the best repayment plan, contact your loan servicer. Your loan servicer can help you switch payment plans. There may be some necessary paperwork, especially if you’re choosing an income-driven repayment plan.
While you’re in the midst of changing repayment plans, be sure to continue making your loan payments. The process of moving to a different repayment plan could take weeks or months, and it’s important not to miss payments in the meantime.
Student Loan Repayment Options for Private Loans
The student loan repayment plans we listed above only apply to federal student loans. Unfortunately, private loan borrowers often have fewer options.
In some cases, private loan borrowers must start repaying their loans while they’re still in school. Depending on the loan, you may be required to make full loan payments, interest-only payments, small fixed payments, or be able to defer your loans altogether.
Once you’ve left school, your lender may or may not have different repayment plans to choose from. In most cases, you’ll be held to a set loan term. These loans can have either a fixed or variable interest rate, meaning your payment may change even with a fixed loan term.
While private loans often don’t have extended or income-driven repayment plans, they may have options for deferment or forbearance if you face financial hardship that prevents you from making your loan payments.
Some borrowers wonder whether it’s worth refinancing their federal loans to a private student loan to take advantage of a potentially lower interest rate. Generally speaking, this move isn’t advisable. You would lose out on the flexibility and multitude of repayment options that come with federal loans. You also eliminate the opportunity for student loan forgiveness, either by making 20 years or loan payments or through PSLF.