For most borrowers, it’s commonly advised to max out your federal student loans before turning to private debt to pay for college. And one of the biggest reasons that federal loans are preferable is the flexible repayment options that come with them.
With more than five options to choose from, federal repayment plans allow you to pay off your debt over 10 to 25 years. Some borrowers may even be eligible to lower their monthly payments based on their income, making their loans more affordable after graduation. If you don’t earn much money, you may even qualify for a $0 monthly payment.
Even better, a few of the plans will forgive any remaining debt you have after you’ve completed the required payments. Here’s a look at the federal student loan repayment plans, and how to choose which is best for you.
7 Repayment Plans for Federal Student Loans
1. Standard Repayment
This is the default repayment plan for borrowers who don’t opt for another. Under the Standard Repayment program, you’ll pay a fixed monthly amount for 10 years. All borrowers with subsidized loans, unsubsidized loans, PLUS loans, and consolidation loans are eligible for this plan.
While your monthly payments may be larger on this plan, your total interest costs should be lower. This is because you pay off your loans quicker and interest has less time to accumulate.
2. Graduated Repayment
The Graduated Repayment plan is similar to the standard option, but with one small change: Rather than a fixed monthly payment, your payments start small and gradually increase every two years. For example, during the first two years of repayment you might owe $200 each month, which later increases to $350 for years three and four, and so on.
You’ll still pay off your debt in 10 years and all borrowers are eligible for this plan. This could be a great option for recent grads who expect to earn more money in a few years. But because your payments start low, you’ll likely pay more in interest than the standard plan over the life of your loan.
3. Extended Repayment
If you have more than $30,000 in Direct Loans, you may be eligible for Extended Repayment. Those who have substantial debt in subsidized loans, unsubsidized loans, PLUS loans, or consolidation loans could qualify. Your monthly payments can be fixed or graduated, and you’ll have up to 25 years to pay off your debt completely.
While your monthly payments will likely be lower on this plan than either the Standard or Graduated Repayment plans, your interest costs will likely rise since you’re stretching your repayment over a longer timeframe.
4. Revised Pay as You Earn (REPAYE)
The REPAYE option is an income-driven plan that sets your monthly payment at a percentage of your income. Any borrower with an eligible loan (including Direct Subsidized and Unsubsidized Loans, and PLUS loans) can apply for this repayment plan.
Payments are set at 10% of your discretionary income; you’ll make payments for 20 years (for undergrad loans) or 25 years (for graduate loans). Any remaining debt that’s left at that time will be forgiven — but you’ll have to pay income tax on any forgiven amount.
You’ll also need to submit info about your income and family annually to stay enrolled in this plan.
5. Pay as You Earn (PAYE)
The PAYE program is similar to REPAYE, but with a few differences. You’ll still pay just 10% of your discretionary income for 20 years, as long as it’s less than what you would pay under the Standard Repayment plan. If your monthly PAYE amount would be higher, you don’t qualify.
You’ll also need to be a relatively new borrower — you must have received a Direct Loan after October 1, 2007 and had no federal loan balance when that loan was disbursed. You must also have received a Direct Loan after October 1, 2011 to qualify.
6. Income-Based Repayment (IBR)
If PAYE sounds too difficult to qualify for, IBR might be a better fit. Under this plan, you’ll pay either 10 or 15 percent of your income for 20 to 25 years, depending on when you took out your loans. To qualify, your monthly payment under IBR can’t be more than what you would pay on the Standard Plan.
Here’s a closer look at the details:
- If you took out loans after July 1, 2014, you’ll pay 10 percent of your discretionary income for 20 years
- If you took out loans before July 1, 2014, you’ll pay 15 percent of your discretionary income for 25 years
Any remaining debt will be forgiven after you’ve completed the required payments. Like other income-driven plans, you’ll need to recertify your income and family data each year to remain eligible.
7. Income-Contingent Repayment (ICR)
Under ICR, you’ll pay either 20 percent of your discretionary income or the amount you would pay with a fixed payment over 12 years — whichever is less. Repayment takes place over 25 years, after which any remaining balance will be forgiven.
Most loan types are eligible for this plan, and this is the only income-driven repayment available to parent PLUS loan borrowers. However, parents will need to consolidate their debt into a Direct Consolidation Loan to qualify.
Compare Costs Before Choosing a Plan
The repayment plan you choose affects more than your payoff date; it can also affect the total cost of your loan. Though some of these plans lower your monthly payments to small amounts or stretch your repayment over many years, interest will continue to accumulate on your account — which will have a significant effect on how much you pay over the life of your loan.
It’s important to compare the total costs of your loan before selecting your repayment plan since added interest can add tens of thousands of dollars to your debt.
4 Key Takeaways
- You can choose between fixed or graduated payments for 10 years, or opt for a payment plan based on your income if you qualify.
- Income-driven plans set your monthly payments at a percentage of your discretionary income, but you’ll have to recertify your info annually to remain enrolled.
- If you don’t earn much, you may qualify for $0 monthly payments.
- Generally, the longer it takes to repay your debt, the lower your monthly payments will be — but your total interest costs will also rise.