Student Loan Repayment Options

When it’s time to repay your student loans, you might wonder what student loan repayment options are available. The answer is that it depends on whether your loans are federal or private student loans.

There are several ways to repay your federal student loans. Most student loan repayment options are designed to work with your income and budget. Since both can change over time, you have the option to change your federal student loan repayment plan if needed to accommodate those very changes.

Private student loans also have various repayment options, and those can vary from lender to lender. It’s a good idea to understand your repayment options before agreeing to any loan to ensure you’re comfortable with your commitment as there’s typically little to no flexibility to change repayment plans once the loan is secured.

Standard Federal Student Loan Repayment Plans

Federal student loans have set repayment plan options. Depending on your loan, you may be eligible for more than one of these plans. If you have questions, it’s best to reach out to your student loan servicer to discuss and weigh your options.

Standard Repayment Plan

This is the federal student loan basic repayment option. Your loan will likely be placed on the Standard Repayment Plan unless you select or choose a different plan once you begin repayment. With the federal student loan Standard Repayment Plan, you pay a fixed amount per month over 10 years. An exception to the 10-year period is a Consolidation Loan. Consolidation Loans combine one or more federal loans into a new student loan, which can extend the time allowed to pay it off to as many as 30 years.

The quicker you pay off your student loan, the less it costs in interest, so committing to a 10-year repayment plan has advantages over a longer-term plan. Under the Standard Repayment Plan, you’ll pay a higher amount per month (at least $50) than with other options, which also helps reduce the overall cost of your loan.

The following federal student loans are eligible for this plan:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • Consolidation Loans (Direct or FFEL)

Graduated Repayment Plan

Not everyone can commit to higher monthly loan installments right out of school. If you’re looking to start with a lower monthly bill, the Graduated Repayment Plan enables you to do so. Your monthly installment increases over time (about every two years), which is intended to keep pace with your growing salary.

Like the Standard Repayment Plan, the Graduated Repayment Plan is designed to help you pay off your federal student loan within 10 years. Because you’re not paying as much upfront, you will pay more in interest under this plan than you would with the Standard Repayment Plan.

The following federal student loans are eligible for this plan:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS loans
  • Consolidation Loans (Direct or FFEL)

Like the Standard Repayment Plan, the Graduated Repayment Plan allows up to 30 years to pay off a Consolidation Loan.

Extended Repayment Plan

If you have more than $30,000 in outstanding Direct Loans, you may elect the Extended Repayment Plan. This option is a good fit for those who need more than 10 years to pay off a federal student loan and would like lower monthly payments.

The Extended Repayment Plan allows up to 25 years to pay off your loan, during which your monthly installments may be fixed (unchanging for the life of your loan) or graduated (increasing over time). Extending the time to pay off your loans also means you’ll be paying more overall.

The following federal student loans are eligible for this plan:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • Consolidation Loans (Direct or FFEL)

Income-Driven Federal Student Loan Repayment Plans

Just as the name indicates, income-driven repayment plans use your income to determine what you must pay each month and for how long.

To qualify for an income-driven repayment (IDR) plan, the amount you owe must be high relative to your annual income. You are also required to report your income and family size every year, even if there is no change.

Most income-based repayment plans include some form of loan forgiveness. This means after a set amount of time of 20 or 25 years; any unpaid debt is forgiven. Keep in mind you might still owe taxes on that forgiven amount.

Revised Pay as You Earn Repayment (REPAYE) Plan

With REPAYE, your monthly loan installments are 10% of your discretionary income, which means they could be as little as $0 or as high as you’d pay under the Standard Repayment Plan.

Under REPAYE, you’re allowed 20 years to pay off loans for undergraduate studies and 25 years to pay off loans that include graduate work. Any amount not paid within the set time is typically forgiven.

The following federal student loans are eligible for REPAYE:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to students (not parents)
  • Direct Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents.

With REPAYE, student loans can cost more than the 10-year Standard Repayment Plan, but the plan provides breathing room if your income fluctuates or your loan amount is high.

Pay As You Earn (PAYE) works similarly, but you’ll never be required to pay as much monthly as you would under the Standard Repayment Plan. Additionally, you must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.

PAYE works like other income-driven federal student loan repayment options in that you must report income and family size annually, and any unpaid balance will be forgiven – in this case after 20 years.

Federal student loans eligible for PAYE are the same as those eligible for REPAYE (above).

Income-Based Repayment (IBR) Plan

IBR is similar to REPAYE/PAYE, but your monthly installment depends on when you took out your loan. Through IBR, your monthly loan installments are 10% to 15% of your discretionary income. The higher percentage (15%) applies to loans taken out before 2014, which may be paid back in 25 years. All others under IBR are allowed 20 years. Any amount not paid in the given amount of time is typically forgiven.

The following federal student loans are eligible for IBR:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS loans made to students (not parents)
  • Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents.

If you fall into the 15% category, you might pay more than you would under other income-based repayment plans, but you may save money on interest through higher monthly installments.

Income-Contingent Repayment (ICR) Plan

With ICR, your monthly payment will be the lesser of the following:

  • 20% of your discretionary income, or
  • the amount you would pay on a plan with a fixed payment over 12 years (adjusted for your income)

Any remaining balance will be forgiven if you haven’t repaid your loan in full after 25 years. The following federal student loans are eligible for this plan:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to students.
  • Direct Consolidation Loans

Income-Sensitive Repayment (ISR) Plan

ISR works similarly to other income-based student loan repayment plans, but it is available only to the following:

  • Direct Subsidized and Unsubsidized Loans
  • Federal Family Education Loans (FFEL)

FFEL includes Direct and Consolidated Loans. It is a discontinued program in which federal student loans were disbursed by private lenders and guaranteed by the government. The FFEL program ended in 2010, so ISR is not an option for more recent borrowers.

Under ISR, borrowers pay a monthly amount based on their income and they have up to 15 years to pay off their loan.

Which Federal Student Loans are Eligible for which Repayment Plans

Federal Student Loan Consolidation

Most federal student loans can be combined (or consolidated) into one loan to simplify your monthly bill. Consolidation is also an option to lower that monthly bill by extending your repayment period to as many as 30 years. The downside to consolidation with a longer repayment period is that you’ll likely end up paying more in interest due to the lower payments and extended period.

Consolidation differs from refinancing in that it applies exclusively to federal student loans. Refinancing, on the other hand, allows you to combine federal and private student loans under a plan that could reduce your monthly bill by extending your loan period or offer a lower interest rate saving overall on the cost of the loan.

It’s important to note that consolidating your federal student loans cannot be reversed and it could affect your eligibility for loan forgiveness and income-based repayment options.

Repayment Options for Private Student Loans

With private student loans, each lender has its terms and you choose the repayment plan at the time you apply for the loan. Unlike federal loans, most private lenders do not allow you to change repayment plans after you take out the loan. Be sure to do your research and carefully consider your options before agreeing to the loan.

Most private lenders offer multiple repayment options for you to find a plan that fits in your monthly budget. For example, at College Ave Student Loans, borrowers can choose how long they take to repay the loan and whether to make payments while in school full-time. Customers also get an interest rate reduction when they sign up for autopay.

College Ave also emphasizes the cost benefits of making loan payments while you’re still in school and the option to explore refinancing:

If you have a private student loan and are struggling to make your monthly payments, reach out immediately to your lender to see if there are any financial assistance options like deferment or forbearance available.

Repayment Options for Student Loans

Investing in your education is no small undertaking. When you have clarity about student loan repayment options, you gain a solid grasp of what you’ll owe each month and how long it will take to pay off your loan in full.

Should your circumstances change along the way, you have additional options to adjust and keep your financial plans on track.

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