How to Choose a Student Loan Repayment Plan

Get tips on how to find the best repayment plan for your federal student loans.

If you have federal student loans, the U.S. Department of Education offers eight different plans for repaying what you borrowed. Which repayment plan you canand shouldpick depends largely on what type of federal student loans you have, as well as your personal circumstances. Not all loans qualify for every repayment plan, and not every plan is right for all borrowers. Read on to learn more about how to pick the right repayment plan for you.

Available Repayment Plans

The government offers eight different repayment plans for federal student loans.

Basic repayment plans. There are three kinds of basic repayment plans that use a ten to 30 year repayment term:

  • a Standard Repayment Plan
  • a Graduated Repayment Plan, and
  • an Extended Repayment Plan.

Income-driven repayment plans. Income-driven repayment plans set your monthly student loan payment at an amount that is, supposedly, affordable based on your income and family size. The four income-driven repayment plans are:

  • Income Based Repayment Plan (IBR)
  • Income Contingent Repayment Plan (ICR)
  • Pay As You Earn Repayment Plan (PAYE), and
  • Pay As You Earn Repayment Plan (REPAYE).

Income Sensitive Repayment Plan (ISR). Much like with the income-driven repayment plans, under the ISR Plan, your payments increase or decrease based on your annual income.

To learn more about each of these plans, see Student Loan Repayment Plans. (While the repayment options discussed in this article are currently available, if passed, the Promoting Real Opportunity, Success and Prosperity through Education Reform—PROSPER—Act will reduce repayment options for new borrowers to only two plans: a ten-year Standard Repayment Plan and one Income-Based Repayment Plan. These limited options will likely apply to new borrowers starting in 2019.)

Where to Start

Your loan servicer will automatically enroll you in a Standard Repayment Plan unless you tell them otherwise. Here’s one way to approach choosing the best repayment plan for you:

If you qualify for Public Service Loan Forgiveness, consider an income-driven plan. Under the Public Service Loan Forgiveness (PSLF) program, your federal Direct Loans or Direct Consolidation loans are forgiven after you make 120 qualifying monthly payments under a qualifying repayment plan while:

  • working full-time for the government
  • working full-time for a nonprofit organization that’s tax-exempt under Section 501(c)(3) of the Internal Revenue Code
  • working full-time for a nonprofit organization that isn’t tax-exempt, but the organization’s primary purpose is to provide certain types of qualifying public services, or
  • volunteering full-time with AmeriCorps or the Peace Corps. (Get an overview of PSLF and other federal student loan cancellation programs.)

All of the income-driven repayment plans count as qualifying repayment plans for the purposes of PSLF. So, if you’re eligible for PSLF, consider an income-driven plan: IBR, ICR, PAYE, or REPAYE (but not ISR because you can’t qualify for PSLF with this plan). Also, you should submit a certification form every year or whenever you change jobs. The Department of Education will then let you know if you're on track for PSLF.

You can also qualify for PSLF if you choose the ten-year standard repayment plan, but if you’re in this plan during the entire time you’re working towards PSLF, you won’t have a remaining balance left to forgive after you’ve made 120 qualifying PSLF payments.

If PSLF isn’t an option, consider the Standard Repayment Plan if you can afford it. Under the Standard Repayment Plan, you’ll pay off your loans in ten years or less, which means you’ll pay less in interest and get out of debt quicker than you would under another repayment plan.

If you can’t afford the Standard Repayment Plan, look into the other plans. A good way to figure out which of the other plans might work you is by using the Department of Education’s repayment estimator or by contacting your loan servicer. (Find out who your loan servicer is by logging in to My Federal Student Aid.)

Tips on Switching Repayment Plans

Keep these tips in mind when considering repayment plans:

  • Don't wait to switch payment plans until you're seriously behind in your payments. If you're in default on your loans, many of these options won't be available to you. (For most federal student loans, you’re in default if you haven’t made a payment in more than 270 days.)
  • You aren't locked into the plan you choose. If you switch plans and you’re not happy with your new plan, you can switch again.

Getting Help

To learn more about federal student loans, including the various repayment plans covered in this article, visit the U.S. Department of Education’s Federal Student Aid website or call your loan servicer.

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