Federal student loan repayment plans: Know your options

Paying off your student loans is easier said than done. That’s why you might want to explore federal student loan repayment plans. Depending on the plan, you may be able to lower your monthly payment, pay off your loans sooner, or save on interest.

Let’s take a closer look at how traditional and income-driven federal student loan repayment plans work, how to apply for one, and how to decide which repayment plan is best for you.

• Traditional federal student loan repayment plans
• Income-driven federal student loan repayment plans
• How do you apply for a federal student loan repayment plan?
• Which federal student loan repayment plan is best?
• Alternatives to federal student loan repayment plans
• What is student loan forgiveness and who is eligible?

Traditional federal student loan repayment plans

Traditional federal student loan repayment plans aren’t tied to your income. The U.S. Department of Education offers three traditional federal student loan repayment plans:

Standard Repayment Plan

All federal student loan borrowers are eligible for the Standard Repayment Plan, which comes with fixed payments that you’ll typically make over 10 years (one of the shortest repayment periods). Also, your interest rate will stay the same.

• Eligible loans — Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, PLUS Loans, Consolidation Loans (Direct or FFEL)
• Repayment terms — 10 years (up to 30 years for Consolidation Loans)
• Pro — Fixed monthly payments are easier to budget for
• Con — Monthly payments may be higher than other plans

Extended Repayment Plan

The Extended Repayment Plan may be a good choice if you have more than $30,000 in outstanding student loan debt. It comes with fixed and graduated monthly payments.

• Eligible loans — Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, PLUS Loans, Consolidation Loans (Direct or FFEL)
• Repayment terms — Up to 25 years
• Pro — Lower monthly payments than the standard and graduated plans
• Con — Doesn’t qualify for Public Service Loan Forgiveness (PSLF)

Graduated Repayment Plan

With the Graduated Repayment Plan, you can expect lower initial payments that go up every two years. This plan may make sense if you’d like to repay your loans quickly but have a low starting income that you expect to increase over the course of the repayment period.

• Eligible loans — Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, PLUS Loans, Consolidation Loans (Direct or FFEL)
• Repayment terms — 10 to 30 years
• Pro — Monthly payments are more affordable at first while you may be living on entry-level wages
• Con — If your income doesn’t go up as you expect, you may face financial strain toward the end of your repayment period

Income-driven federal student loan repayment plans

Unlike traditional federal student loan repayment plans, income-driven federal student loan repayment (IDR) plans are directly correlated to your income. Here’s an overview of each:

Income-Based Repayment Plan (IBR)

If you borrowed your student loans on or after July 1, 2014, your IBR Plan will include a monthly payment that’s 10% of your discretionary income over a 20-year repayment period. If you borrowed before July 1, 2014, you’ll pay 15% of your discretionary income over 25 years.

For this plan, discretionary income is the difference between your annual income and 150% of the poverty guideline for your state and family size. Regardless of when you took out your loans, your monthly payment will never be more than the 10-year Standard Repayment Plan amount.

• Eligible loans — Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, PLUS Loans made to students, Consolidation Loans (Direct or FFEL) that don’t include PLUS Loans made to parents
• Repayment terms — Up to 25 years
• Pro — Monthly payments will decrease if your income decreases
• Con — May pay more interest because of the longer repayment term

Income-Contingent Repayment Plan (ICR)

With the ICR Plan, your monthly payment is either 20% of your discretionary income or what you’d pay on a repayment plan with a fixed payment over 12 years, whichever is less. Its definition of discretionary income is the difference between your actual income and 100% of the poverty guideline for your state and family size.

• Eligible loans — Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to students, Direct Consolidation Loans
• Repayment terms — Up to 25 years
• Pro — Access to loan forgiveness at the end of the repayment term
• Con — Monthly payment may be higher than you’d pay on the 10-year Standard Repayment Plan, depending on your income and family size

Income-Sensitive Repayment Plan (ISR)

The ISR Plan is for Federal Family Education Loan (FFEL) borrowers. It has a 10-year repayment period and monthly payment that’s determined by your lender. Payments increase and decrease based on your annual income.

• Eligible loans — Subsidized and Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, FFEL Consolidation Loans
• Repayment terms — 10 years
• Pro — You’ll pay less interest overall because of the shorter repayment term
• Con — Your loans may not be eligible if you’re not in the FFEL Program

Pay As You Earn Repayment Plan (PAYE)

With the PAYE Plan, your monthly payment is 10% of your discretionary income, and you’ll never pay more than you would on the Standard Repayment Plan. The PAYE Plan caps your monthly payment at the Standard Repayment Plan level, even if your income increases.

• Eligible loans — Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to students, Direct Consolidation Loans that don’t include PLUS Loans (Direct or FFEL) made to parents
• Repayment terms — 20 years
• Pro — Payment will never exceed the amount you’d pay on the Standard Repayment Plan
• Con — Can only qualify if your monthly payment is lower than what you’d pay under the Standard Repayment Plan

Revised Pay As You Earn Repayment Plan (REPAYE)

According to the REPAYE Plan, your monthly payment is 10% of your monthly discretionary income, which is the difference between your annual income and 150% of the poverty guideline for your state and family size. But you’ll never pay more than you would on the Standard Repayment Plan.

• Eligible loans — Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to students, Direct Consolidation Loans that don’t include PLUS Loans (Direct or FFEL) made to parents
• Repayment terms — 20 years for undergraduate study loans and 25 years for graduate or professional study loans
• Pro — Access to loan forgiveness at the end of the repayment term
• Con — May pay more interest because of the longer repayment period

All IDR plans require you to recertify your income on an annual basis — even if your income or family size hasn’t changed. If you take out an IDR plan and don’t go through the recertification process, you may be removed from the plan and find that your monthly payments skyrocket. To recertify, you’ll log into your StudentAid.gov account.

How do you apply for a federal student loan repayment plan?

To apply for a federal student loan repayment plan, you’ll need to go to the Federal Student Aid website and log into your account.

Be prepared to answer a variety of questions on the application related to your employment, marital status, and family size. You’ll also need to provide proof of income. Keep in mind that you’ll need to complete the entire application in a single session, which usually takes 10 minutes or less.

Which federal student loan repayment plan is best?

The ideal federal student loan repayment plan for you is based on your unique situation. It depends on your income, family size, financial goals, and personal preferences. Do you want to lower your monthly payments? Or is your main objective to pay off your student loans early? Be sure to research all your options before you choose a plan. It’s also a good idea to revisit them each year to see if a different plan might work better for you.

Check out the StudentAid.gov Loan Simulator for some assistance with finding the best federal student loan repayment plan for your situation. It’ll help you explore your options and make a sound decision tailored to your goals and needs.

Alternatives to federal student loan repayment plans

If you find that federal student loan repayment plans aren’t a good fit, or you aren’t eligible for one, consider these alternatives:

• Direct Consolidation Loan — With a Direct Consolidation Loan, you can combine multiple federal student loans into a single loan with one monthly payment. Your new interest rate will be a weighted average of the rate you’re paying on your existing loans, so you won’t necessarily receive a lower rate by consolidating. But this option can simplify the repayment process and make it easier to stay on top of your payments.
• Deferment or forbearance — Deferment and forbearance allow you to postpone or reduce your federal student loan payments temporarily. While interest won’t accrue on your loan balance in deferment, it will accrue if you’re in forbearance. You can contact your student loan service provider to apply for either option.
• Refinance — You can refinance your federal loans with a private lender, not the federal government. Refinancing your student loans may help you save on interest and lower your monthly payments. But the caveat is that you’ll miss out on benefits such as federal student loan repayment plans, access to Public Service Loan Forgiveness, and loan discharge options. So think carefully before refinancing your federal student loans into a private student loan.

What is student loan forgiveness and who is eligible?

In certain situations, your federal student loans may be forgiven or canceled. This means you no longer have to pay back some or all of them. Some of the above repayment plans offer student loan forgiveness after a specified amount of time.

Also, if you work for a government or nonprofit organization, you may be eligible for student loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program. With PSLF, your student loans will be forgiven after you’ve made 120 qualifying payments while working full-time for a qualifying employer.

Other examples of student loan forgiveness options are Teacher Loan Forgiveness, closed school discharge, and Perkins Loan cancellation and discharge. Visit the Federal Student Aid website for more information on student loan forgiveness.