8 Options for Repaying Your Federal Student Loans

If you recently graduated from college with federal student loans, the countdown to repaying them is already on. Here’s the typical scenario.

About six months after you graduate, you’ll be assigned to the federal government’s Standard Repayment Plan. If you don’t request an alternative repayment plan, you’ll be required to start making fixed payments for the next 10 years until your loan is paid off.

While the Standard plan may work well for some graduates, it’s important to weigh the potential advantages and disadvantages of the repayment plans you may be eligible for. The following breakdown is a good place to start.

Standard Repayment Plan

Who is eligible: Everyone with a federal student loan is automatically assigned to this plan.

Years to repay: 10

Monthly payment: Same fixed payment every month.

  • Because the loan is amortized over 10 years, your monthly payment is set at an amount that ensures the entire loan will be paid off after 120 payments.

  • Payments include both principal and interest.

Potential advantages:

  • If you can afford the Standard plan, you’ll pay less in interest and pay off your loans faster than you would on other federal repayment plans.

  • You have the option to pay more than the minimum amount. If you choose to do so, you can pay off the loan in less than 10 years.

Considerations:

  • If you are currently unemployed or have little disposable income, an extended repayment (or other option) be a better fit for you.

  • No loan forgiveness features are offered.

Graduated Repayment Plan

Who is eligible: All borrowers with federal student loans.

Years to repay: 10

Monthly payment: Payments start out smaller but increase incrementally – usually every two years – to make sure the loan is paid off within 10 years.

Potential advantages:

  • May be a good option if you need a lower monthly payment now but expect to make more money in the future.
  • Your payments will be lower than the Standard plan, but never too low that you aren’t paying the amount of interest that is accruing each month.
  • Your repayment term is 10 years, so if you make your scheduled payments, you’ll finish paying off your debt in a relatively short amount of time.

Considerations:

  • Even though your loan may be paid off in 10 years, you’ll end up paying more in interest than the Standard plan because you’re making lower payments in the first few years.
  • Your payments will be applied toward interest only (i.e., not principal) in the beginning of the repayment plan.
  • Because payments are scheduled to increase, your payments could go up substantially, depending on the amount you owe.

Extended Graduated Repayment Plan

Who is eligible:

Direct Loan borrowers with:

  • No outstanding balance on a Direct Loan as of Oct. 7, 1998, or on the date the Direct Loan was obtained after Oct. 7, 1998; and
  • More than $30,000 in outstanding Direct Loans.

FFEL (Federal Family Education Loan) borrowers with:

  • No outstanding balance on a FFEL Program loan as of Oct. 7, 1998, or on the date a FFEL Program loan was obtained after Oct. 7, 1998;
  • More than $30,000 in outstanding FFEL Program loans.

Years to repay: Up to 25 years.

Monthly payment: An extended version of the Graduated Repayment Plan, with graduated payments over 25 years (vs. 10 years).

Potential advantages:

  • Payments are generally lower than under the Standard and Graduated Repayment plans.
  • This plan is designed under the premise that your income usually increases as your career progresses, so your payments increase the same way.
  • May be a good option if you have a lot of debt and you hope to be able to pay more in the future.

Considerations:

  • Because you’ll be making payments for a longer time, the overall amount you pay could be much greater than a plan with a 10-year repayment period.
  • Payments begin at a lower level but move up incrementally until the loan is paid off.
  • Not available to all borrowers.

Extended Fixed Repayment Plan

Who is eligible:

Direct Loan borrowers with:

  • No outstanding balance on a Direct Loan as of Oct. 7, 1998, or on the date the Direct Loan was obtained after Oct. 7, 1998; and
  • More than $30,000 in outstanding Direct Loans.

FFEL borrowers with:

  • No outstanding balance on a FFEL Program loan as of Oct. 7, 1998, or on the date a FFEL Program loan was obtained after Oct. 7, 1998; and
  • More than $30,000 in outstanding FFEL Program loans.

Years to repay: Up to 25 years.

Monthly payment: Similar to the Standard Repayment Plan, you’ll make equal monthly payments – but they are stretched out over a longer period of time (i.e., a maximum of 25 years vs. 10 years for the Standard plan).

Potential advantages:

  • Typically, your payments will be lower than under the Standard Repayment Plan.
  • May be a good option if your future is uncertain and you’d like the peace of mind that comes with knowing you’ll have a consistent lower payment until the loan is paid off.

Considerations:

  • Lower payments over a longer period of time will result in higher overall costs.

Income Based Repayment (IBR) Plan

Who is eligible: Borrowers who have a high debt relative to their income and have a qualifying federal loan (Direct loans; Stafford loans; PLUS loans made to students; qualifying Consolidation loans).

Years to repay: 20 or 25

Monthly payment: Income-based repayment plan adjusts your monthly payments based on your discretionary income and family size each year. If you borrowed:

  • After July 1, 2014, payments will be 10% of discretionary income.*
  • Before July 1, 2014, payments will be 15% of discretionary income.**

Potential advantages:

  • Any outstanding loan balance will be forgiven after 20 years* or 25 years** of qualifying payments.
  • Your monthly payment will never be more than the 10-year Standard plan.
  • Offers the potential for the lowest monthly payment.

Considerations:

  • If you’re married, your spouse’s income or loan debt will also be considered – but only if you file a joint tax return.
  • You’ll usually pay more over time than the 10-year Standard plan.
  • You may have to pay income tax on any amount that is forgiven.

Pay As You Earn (PAYE) Repayment Plan

Who is eligible: 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. Also, to be eligible, you must have a high debt relative to your income.

Years to repay: 20

Monthly payment:

  • Payments will be 10% of your discretionary income, but never more than what you would have paid under the 10-year Standard plan.
  • Once you enroll, you need to recertify each year and provide proof of income and family size (even if they haven’t changed).

Potential advantages:

  • Any outstanding loan balance will be forgiven after 20 years of qualifying payments.
  • Your monthly payment will never be more than the 10-year Standard plan.
  • Unpaid interest is only capitalized until the principal increases by 10%. (This is an advantage, because when interest is capitalized, you pay interest on the interest.)

Considerations:

  • If you’re married, both of your incomes and loan debt will be considered – but only if you and your spouse file a joint tax return.
  • You will usually pay more interest because your payments start out lower and continue for a longer period than the 10-year Standard plan.
  • You may have to pay income tax on any amount that is forgiven.

Revised Pay As You Earn (REPAYE) Repayment Plan

Who is eligible: Borrowers with Direct Subsidized and Unsubsidized Loans; Direct PLUS loans made to students; and Direct Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents.

Years to repay: 20 for undergraduate loans

Monthly payment:

  • Payments will be 10% of your discretionary income and will be recalculated every year based on your updated income and family size.
  • If you’re married, both your incomes and loan debt will be considered, whether you and your spouse file taxes separately or jointly (in most cases).

Potential advantages:

  • Any outstanding loan balance will be forgiven after 20 years of qualifying payments (for undergraduates).
  • Eligibility does not depend on the year you borrowed.
  • May be a good option if you don’t qualify for PAYE and would only be eligible for the less-generous 15% cap on payments on IBR.
  • Gives borrowers the opportunity to limit their loan bills to 10% of their incomes.

Considerations:

  • You’ll usually pay more over time than under the 10-year Standard Plan.
  • No monthly payment caps.
  • You may have to pay income tax on any amount that is forgiven.

Income-Contingent Repayment (ICR) Plan

Who is eligible: Borrowers with Direct Subsidized and Unsubsidized loans; Direct PLUS loans made to students; and Direct Consolidation loans.

Years to repay: 25

Monthly payment: Will be the lesser of:

  • 20% of discretionary income; or
  • The amount you’d pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.

You’ll need to update your income and family size annually (even if they don’t change).

Potential advantages:

  • Any outstanding loan balance will be forgiven after 25 years of qualifying payments.
  • Income does not affect eligibility (unlike IBR and PAYE).

Considerations:

  • If you’re married, your spouse’s income or loan debt will be considered if you:
    • File a joint tax return; or
    • Repay your Direct loans jointly with your spouse.
  • You’ll usually pay more over time than under the 10-year Standard plan.
  • You may have to pay income tax on any amount that is forgiven.

Before you make a final decision…

Find out more about the repayment plans available for the Direct Loan Program at studentaid.gov/repay.


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