Which student loan repayment plan should I choose?

The average monthly federal student loan payment is $756 according to the U.S. Department of Education. For many Americans, this hefty payment can stretch budgets thin, making it difficult to cover essential expenses like rent or child care. The good news, you don't have to stick with the Standard Plan. Another repayment plan might better suit your financial goals.

Here's a guide to help you compare your options and choose the best repayment plan for you.

Student loan repayment plans overview

Compare federal repayment plans

The federal government offers various fixed and income-driven repayment plans. Depending on your repayment goals, certain plans will be a better fit than others. Here's a closer look at your options as a federal borrower:

Standard Repayment Plan

Best for: Paying the least amount of interest

The Standard Repayment Plan is the default plan for federal Direct Loans and Federal Family Education Loan (FFEL) Program loans. It's ideal if you want to minimize interest and pay off your debt quickly. This plan splits your total loan balance, including accrued interest, into 120 equal payments over 10 years. Each payment is fixed, so it won't change from the first to the last. The minimum payment under this plan is $50, but your monthly payment will depend on your total loan balance and accrued interest.

For Direct Consolidation Loans or FFEL Consolidation Loans, the repayment term under the Standard Plan is based on your total debt. For instance, if your loan balance is under $7,500, you'll have a 10-year repayment period. Borrowers with over $60,000 in consolidated loans can have up to 30 years to repay.

Graduated Repayment Plan

Best for: Borrowers who expect their income to increase over time

The Graduated Repayment Plan is ideal for federal loan borrowers with low starting salaries but who expect their income to rise. This plan begins with low payments that gradually increase every two years over a 10-year period. Your payments will always cover the accruing interest and also won't exceed three times the payment amount of any other plan.

Like the Standard Repayment Plan, the Graduated Plan offers a repayment period of 10 to 30 years for Direct Consolidation and FFEL Consolidation Loans, based on your unpaid loan balance.

Extended Repayment Plan

Best for: Low monthly payments

The Extended Repayment Plan extends the repayment period from the standard 10 years to up to 25 years. With this plan, you can choose between fixed monthly payments or a graduated payment schedule. Payments are typically lower than those on the Standard and Graduated Plans due to the extended timeline. However, a longer repayment period means you'll pay more interest over the life of your loan.

To qualify for this plan, you must have an eligible federal loan and meet specific criteria. You must not have had an unpaid Direct Loan or FFEL balance as of October 7, 1998, and your outstanding loan balance must be higher than $30,000.

Income-driven repayment (IDR) plans

Best for: Loan forgiveness

If you're a low-income borrower, have a fluctuating income, or have high debt relative to your income, enrolling in an income-driven repayment (IDR) plan might be a good fit. There are four IDR plans, each calculating your monthly payment based on your income and family size. Your payment will be a percentage of your discretionary income, which can be as low as $0 per month for some borrowers.

Student loan forgiveness is a key benefit of IDR plans. Any remaining loan balance after completing the repayment plan is forgiven. Just remember you may be taxed on the forgiven amount.

The income-driven repayment plans are:

• Saving on a Valuable Education (SAVE) Plan: Payments under the SAVE Plan are set at 5% of discretionary income for undergraduate loans and 10% for graduate loans. Loans are repaid over a period of 10 to 25 years depending on your original loan balance.
• Income-Based Repayment (IBR) Plan: Under the IBR Plan, you'll pay 10% of your discretionary income over 20 years for loans borrowed after July 1, 2014. For loans borrowed earlier, you'll pay 15% of your discretionary income over 25 years.
• Pay As You Earn (PAYE) Plan: Payments are 10% of your discretionary income over 20 years. As of July 1, 2024, borrowers will no longer be able to enroll in this plan.
• Income-Contingent Repayment (ICR) Plan: The most expensive plan is ICR which sets payment at 20% of your discretionary income for 25 years. As of July 1, 2024, only Direct Consolidation Loans and FFEL Consolidation Loans that repaid PLUS loans made to parents are eligible to enroll in ICR.

What's the best repayment plan for me?

Here are the best federal student loan repayment plans to consider, depending on your goals.

If you need more help choosing the right repayment plan for you, use Federal Student Aid's loan simulator tool. Simply enter your loan details and financial information to get personalized payment estimates and compare repayment plans side-by-side.

Private student loan repayment plans

Private student loan borrowers don't have access to federal repayment plans. Each lender offers different repayment terms, typically between 5 and 20 years, and these terms usually can't be changed once the loan agreement is signed.

If you're struggling to make your private student loan payments, contact your lender immediately. Some lenders provide temporary relief for borrowers facing unique circumstances. It's better to discuss your options early rather than risk default.

While there's no formal forgiveness or cancellation program for private loans, there are alternatives that may offer some relief.

Strategies for managing repayment

Your strategy for approaching student loan repayment will likely vary whether you have federal vs. private student debt. Here are some strategies to help you manage repayment:

• Change your repayment plan: Staying on the default Standard Plan might feel like the easiest option, but if you have high student debt or qualify for loan forgiveness, it might not be the best plan for you. Ask your servicer about other plans available to you that match your long-term goals.
• Make extra monthly payments: If this option is feasible for your budget, consider making extra payments each month to lower your principal balance faster. You'll also save more on interest over time.
• Refinance student loans: A student loan refinance pays off your original loan and creates a new private loan with a new rate and terms in its place. This option can be useful if your original loan terms weren't serving your immediate repayment needs. Just beware of refinancing federal student loans since you'll lose access to federal repayment plans and forgiveness options.

If you're considering the refinancing approach to your student debt, ensure you're comparing multiple lender offers to find the most competitive refinancing rates you qualify for.

Current student loan refinance rates

FAQ

Which student loan repayment plan will save me the most money?

The Standard Repayment Plan saves borrowers the most money in interest charges. Another benefit of the Standard Plan is it helps borrowers get out of debt quickly.

How do I switch to a different student loan repayment plan?

You can switch your federal student loan repayment plan at any time by contacting your loan servicer. You can either call them over the phone, or log into your StudentAid.gov to start a request application.

Is an income-driven repayment plan right for me?

An income-driven repayment plan may be right for you if you need lower monthly payments and potential loan forgiveness. However, IDR plans usually extend your loan term, resulting in more interest paid over time.

Can private student loans be included in federal repayment plans?

No, private student loans cannot be included in federal repayment plans. For changes to your private loan's plan, contact your lender directly.

What are the requirements for student loan forgiveness?

To qualify for student loan forgiveness, you need an eligible federal loan and must make the required number of qualifying payments. Additional requirements may depend on your profession, employer type, or specific loan situation.