If you’re like most students you completed the FAFSA each year, accepted your student loans, and then went about your day without ever stopping to compare student repayment plans. Then, right before graduation, you were sent the bill and probably felt overwhelmed, or even a sense of panic. For current students and recent graduates with little disposable income, it can be easy to wonder how you’re ever going to repay the money you borrowed.
It is helpful to view your student loan payment as just another monthly payment, like your auto insurance or rent. It is also important to know that you are not alone. About 43.4 million people have federal student loan debt averaging $37,014, and that number increases even more when private student loans are factored in.
Luckily, the federal government and some private lenders provide various student loan repayment options based on your financial situation. There are 6 different types of loan repayment plan:
Selecting the right student loan repayment plan can make your monthly payments more manageable and help you pay off your balance as soon as possible.
» Read: The different types of student loans
What is a loan principal?
Your loan principal is the actual amount that you borrowed in student loans. For example, if you received $6,000 in student loans per year for four years, your final principal is $24,000. This is different from your loan balance, which also includes any accrued interest.
Federal student loan repayment options
There are several types of student loans to choose from. Federal student loans often have favorable loan terms and can provide students with more flexibility than private loans. We’ll explore the federal student loan repayment options below to help you decide which is right for you.
Standard repayment plan
The Standard Repayment Plan is the plan that you’ll automatically be enrolled into when it’s time to start paying back your student loans. Under this plan, you pay fixed monthly payments that allow you to pay off your student loan principal plus accrued interest within 10 years. For example, if your loan principal plus your interest totals $30,000, you pay $250 per month for 10 years.
Graduated repayment plan
The Graduated Repayment Plan offers monthly payments that increase over time. In other words, your monthly payments are low when you first start out and gradually increase each year. Like the Standard Repayment Plan, you can expect to pay off your student loans within 10 years.
Eligibility and requirements
Any student loan borrower with federal direct subsidized or unsubsidized, PLUS, or consolidation loans is eligible.
Extended repayment plan
For students who can only afford small monthly payments, the Extended Repayment Plan allows fixed or graduated monthly payments over a longer period of time. The repayment term can be as long as 25 years, at which point the federal government forgives the remaining loan balance. If you’ve only taken out undergraduate loans, the government forgives your remaining loan balance in 20 years.
Federal student loan repayment options compared
|Standard Repayment (SRP)||Graduated Repayment||Extended Repayment|
|Eligibility||Federal direct subsidized or unsubsidized, Plus, and consolidation loans.||Federal direct subsidized or unsubsidized, Plus, and consolidation loans.||Federal direct subsidized or unsubsidized ($30k minimum), PLUS, and consolidation loans.|
|Duration||10 years||10 years||undergrad ≤20 years/Grad ≤25 years|
|Payment type||Fixed monthly payments||Graduated monthly payments||Fixed or graduated monthly payments|
|Cost of interest||You will generally pay less in interest on this plan compared to other repayment plans.||You will generally pay more in interest on this plan than the SRP.||You will generally pay significantly more in interest on this plan than the SRP.|
|Public Service Loan Forgiveness (PSLF)||Ineligible||Ineligible||Ineligible|
Which traditional repayment plan is right for me?
With all of this information, it can be confusing to try and figure out which plan is right for you. The Standard Repayment Plan is a great option if you’re making enough money after graduation to cover your monthly payments. It will help you pay your loans off as fast as possible while paying minimal interest.
If you’re not making enough to cover the monthly payments under the Standard Repayment Plan, the Graduated Repayment Plan could be right for you. You’ll still be able to pay off your loans within ten years. However, due to interest, you’ll probably pay more over time.
If you’re working in a low-paying job or find yourself struggling to make monthly payments, the Extended Repayment Plan can make repaying your student loans more manageable and provide you with more flexibility. It’s important to note that you’ll end up paying significantly more in interest on this plan.
Pay as you earn repayment plans
PAYE and REPAYE Plans limit your monthly student loan payment to 10% of your income. Both plans recalculate your monthly student loan payments each year based on your income and family size.
One key difference is that your monthly payments with the PAYE Plan are never more than they would be on the Standard Repayment Plan. REPAYE, on the other hand, has no limit, so your monthly payments could actually end up being more. Additionally, you need to meet certain income requirements for PAYE, but annual income does not affect your eligibility for REPAYE.
PAYE has a limit of 20 years while REPAYE has a limit of 20 years for undergraduate student loans and 25 years for graduate student loans, at which point the federal government forgives any outstanding balance.
Income-based repayment plans
Many students choose to enroll in Income-Based or Income-Contingent Repayment Plans following graduation in order to make monthly payments more manageable. Both IBR and ICR recalculate your monthly payments each year based on your income and family size.
Income-Based Repayment (IBR) requires you to have significant debt in relation to your income. Monthly payments are between 10-15% of your income, but never more than they would be on the Standard Repayment Plan. Loans are forgiven on this plan after 20-25 years.
Pay as you earn and income based repayment compared
|PAYE Plan||REPAYE Plan||IBR Plan||ICR Plan|
|Eligibility||Federal direct subsidized or unsubsidized, Graduate PLUS, and consolidation loans.||Federal direct subsidized or unsubsidized, Graduate PLUS, and consolidation loans.||For high debt-to-earning loans only. Federal direct subsidized or unsubsidized, Graduate PLUS, and consolidation loans.||Federal direct subsidized or unsubsidized, Graduate PLUS, and consolidation loans.|
|Parent PLUS||Ineligible||Ineligible||Ineligible||Eligible as part of consolidation loan.|
|Duration||≤20 years||undergrad ≤20 years/Grad ≤25 years||undergrad ≤20 years/Grad ≤25 years||≤25 years|
|Payment type||10% of your income, capped at SRP level.||10% of your income.||10-15% of your income, capped at SRP level.||20% of your income or the amount you would pay on SRP over 12 years.|
|Cost of interest||Generally higher than traditional plans.||Generally higher than traditional plans.||Generally higher than traditional plans.||Generally higher than traditional plans.|
|Public Service Loan Forgiveness (PSLF)||Eligible||Eligible||Eligible||Eligible|
Which income-based repayment plan is right for me?
These are all eligible repayment plans for the Public Service Loan Forgiveness (PSLF) program. They’re also great options for student loan borrowers who need to make lower monthly payments. The PAYE plan is optimal if you’re looking to limit your monthly payments, while REPAYE is an excellent option if you’d like your monthly student loan payments to increase along with your income.
Similarly, the Income-Based Repayment Plan is a good option if you want to limit your loan payments to 10% of your income and don’t hold any Parent PLUS loans. For student loan borrowers with Parent PLUS loans, the Income-Contingent Repayment Plan offers a similar option.
Private student loan repayment options
Each private student loan lender has their own student loan repayment options and requirements. Some offer income-based or other alternative repayment plans, while others only offer standard plans. To find out your options, reach out to your lender directly. It’s a good idea to read through your loan terms and repayment options before borrowing private student loans.
Research your loan repayment options and know all the requirements before you sign on as each repayment program is different.
There are numerous types of student financial aid available – with loans being just one option that is commonly used by many students. Knowing about your options is crucial to making the right decision about how you can fund your education and reach your future goals.
While repaying student loans can be overwhelming, it doesn’t need to be stressful. If you’re finding it difficult to make your student loan payments, reach out to your loan servicer to discuss student loan repayment options. They can help you select and enroll in a repayment plan that works with your needs and current financial situation. Taking advantage of the resources and options available can help you pay off your student loans as quickly as possible and say goodbye to student debt.
Frequently asked questions (FAQs)
What is the Public Service Loan Forgiveness (PSLF) program?
The PSLF program allows individuals to have their student loans forgiven after making 120 qualifying payments through an income-driven repayment plan. To be eligible, you are required to work full time for a U.S. federal, state, local, or tribal government or non-profit organization. U.S. military service also qualifies.
What if I can’t pay my student loans?
No matter how much we prepare, sometimes unexpected things happen in our lives. If you’re unable to make monthly student loan payments, you can reach out to your student loan servicer to discuss forbearance and deferment options. Deferment allows you to temporarily stop making loan payments and also pauses interest from accruing on several types of federal loans. Forbearance reduces or stops your monthly loan payments due to financial hardship, but interest still accrues.
Are student loans cancelled after 20 years?
With REPAYE, IBR and ICR loans – repayments are cancelled after 20 or 25 years. The difference depends on when you first took out the loan. Visit the Federal Student Aid for more details.
How long do I have before I go into default after missing a student loan repayment?
For Federal Student loans, missing a payment for 270 days places you in default. This is different for private loans, so make sure that you read the fine print.