If you have federal student loan debt, you might feel like you’re stuck in your current repayment plan. But you probably have more options than you think. As of late 2020, the U.S. Department of Education offers eight different programs for repaying what you borrowed. Private student loans, though, are different.
Which repayment plan you can—and should—pick depends largely on what type of federal student loans you have, as well as your circumstances. Not all loans qualify for every repayment plan, and not every alternative is right for all borrowers. Read on to learn about the different repayment options for federal student loans and how you might go about choosing one.
Again, different repayment plans apply to federal and private student loans. The options discussed in this article are available for federal student loans. Use the National Student Loan Data System (NSLDS) to find out what federal loans you have.
Private lenders made these loans before July 1, 2010, but they’re no longer available. The federal government guarantees FFELs, which means the government reimburses the lender if you default.
Loans that the federal government makes directly are called, as you might expect, federal Direct Loans.
Perkins Loans were available to undergraduate, graduate, and professional students until September 30, 2017, but the program has since expired. Repayment plan options for federal Perkins Loans are different than those for federal Direct Loans or FFELs. If you have a school-issued federal student loan, like a Perkins Loan, ask your school about repayment options.
The basic repayment plans available for federal student loans are a standard repayment plan, a graduated repayment plan, and an extended repayment plan.
Under the standard repayment plan, you’ll make the same monthly payment for the life of the loan. With this kind of plan, you'll normally pay off your loan in the shortest amount of time—up to ten years. (For Consolidation Loans, though, the repayment period is up to 30 years.) So, you’ll pay the most per month but the least amount of interest over the loan term.
Under a graduated plan, your payments start low and increase during the repayment period—usually every two years. This option might be appropriate if your income is low when you graduate but will likely increase quickly.
Like with a standard repayment plan, the timeline is up to ten years except for FFEL Consolidation Loans and Direct Consolidation Loans, which can have a repayment term of up to 30 years. Because you carry a larger balance at the beginning of the repayment period, you'll end up paying more interest than under a standard repayment plan.
An extended plan allows you to have fixed or graduated payments stretched over a period of up to 25 years. To be eligible for this plan, you must have an outstanding loan balance of more than $30,000.
Several income-driven plans are available if your income is low or unstable, or you have moderate income with very high student loan debt. Your payment amount under an income-driven repayment plan is generally a percentage of your discretionary income.
For the IBR plan, you must have a high debt relative to your income. The payments generally are:
If you haven't paid off your loan after 20 years (new borrowers on or after July 1, 2014) or 25 years (if you're not a new borrower on or after July 1, 2014), the government will forgive the remaining balance.
Under the ICR plan, your payment is the lesser of:
Like with all of the income-driven repayment plans, you'll have to reapply every year, and the payment amount will likely be adjusted. If you haven't paid off your loan after 25 years, the government will forgive the remaining balance.
With PAYE, your maximum monthly payments are 10% of your discretionary income. If you haven't paid off your loan after 20 years, the government will forgive the remaining balance.
Like PAYE, with REPAYE, your maximum monthly payments will be 10% of your discretionary income. The main differences between PAYE and REPAYE are:
Under REPAYE, if you haven’t paid off the loan after 20 years (if all loans were for undergraduate study) or 25 years (if any loans were taken out for graduate or professional study), the government forgives the balance.
In this plan, your payments are based on your annual income. The ISR plan is available only to low-income borrowers and only for FFEL loans. Because FFELs were discontinued in 2010, recent borrowers aren't eligible for an ISR plan.
Your loan servicer will automatically enroll you in a Standard Repayment Plan unless you decide on another plan. Here’s one approach for choosing a repayment 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:
All of the income-driven repayment plans count as qualifying repayment plans for 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. And you can use this tool to assist you in completing the forms required for this program.
You can also qualify for PSLF if you choose the ten-year standard repayment plan, but if you’re in this plan 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.
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.
One 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 here.
Keep these tips in mind when considering different repayment plans.
Private student loans aren’t eligible for the repayment plans discussed in this article. If you have private student loans, contact your lender, loan holder, or loan servicer to learn about your repayment options.
To learn more about federal student loans in general, 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.
If you need help dealing with your servicer or want more information about available student loan repayment and forgiveness options, consider consulting with a student loan attorney or debt settlement attorney who deals with student loans.