Federal student loans have various repayment options. While the best repayment option for any loan is the one you can commit to paying consistently and on time, there are options that will allow you to pay less interest or less money overall.
Standard Repayment
The standard payment plan is available to all borrowers and is great for those who want to pay off their debt in the shortest period of time. With a standard student loan payment option, you would make equal monthly payments for 10 years. You’ll pay less interest and pay off your loans faster than you would on other plans.
Eligible Borrowers
All borrowers are eligible for this plan.
Eligible Loans
- Direct Subsidized and Unsubsidized Loans
- Subsidized and Unsubsidized Federal Stafford Loans
- all PLUS loans
- all Consolidation Loans (Direct or FFELP)
Pros of Standard Repayment:
- Shorter repayment period compares to other options
- Less interest over time
Cons of Standard Repayment:
- You may have higher monthly payments compared to the other options
- Your monthly payment would remain the same even if your income dropped
Income-Driven Repayment
Income-driven repayment plans use your income to determine your monthly payment amount. This amount is typically 10-20% of your income and can be as low as $0 if you’re unemployed. With income-driven repayment plans, your loan term is extended, usually to around 12-25 years. When this term is up, the remaining balance you owe will sometimes be forgiven. (However, you would be required to pay taxes on the forgiven amount, so you aren’t totally off the hook there.)
There are various income-driven repayment plans. Each of these options has its own specific requirements in order to qualify, but they’re all ideal for people whose monthly income is too low to pay the standard monthly repayment.
There are 5 different income-driven repayment options offered by the government for federal student loans.
- Pay As You Earn Repayment Plan (PAYE)
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Income-Sensitive Repayment (ISR)
Pay As You Earn Repayment Plan (PAYE)
The PAYE plan makes your monthly payment 10% of your discretionary income. The payments are reevaluated every year and updated if your income or family size changes for any reason. If you haven’t repaid your loan in full after 20 years, the remaining balance will be forgiven.
Eligible Borrowers:
- If you are a new borrower from either on or after October 1, 2007 and received a Direct Loan disbursement on or after October 1, 2011
Eligible Loans
- Direct Subsidized and Unsubsidized
- Direct PLUS loans for students
- Direct Consolidated Loans not including PLUS loans made to parents
Revised Pay As You Earn Repayment Plan (REPAYE)
The REPAYE plan makes your monthly payments 10% of your discretionary income and is recalculated every year in the same way the PAYE plan is. For undergraduate loans, your remaining balance will be forgiven after 20 years, and for graduate loans, 25 years.
Eligible Borrowers:
- Any Direct Loan borrowers with an eligible loan type
Eligible Loans:
- Direct Subsidized and Unsubsidized
- Direct PLUS loans for students
- Direct Consolidated Loans not including PLUS loans made to parents
Income-Based Repayment Plan (IBR)
An IBR plan sets monthly payments at either 10% or 15% of your discretionary income, neither amounting to more than what you would pay under the 10-year standard repayment plan. Payments are reevaluated every year based on changes in income and family size. Depending on when you received your first loan, your remaining balance will be forgiven after either 20 or 25 years. It’s important to note that you may have to pay taxes on this forgiven amount.
Eligible Borrowers:
- Those with high debt relative to their income
Eligible Loans:
- Direct Subsidized and Unsubsidized
- Subsidized and Unsubsidized Stafford Loans
- All PLUS loans for students
- Consolidation Loans not including PLUS loans made to parents
Income-Contingent Repayment Plan (ICR)
The ICR plan sets monthly payments at whichever is lesser: 20% of discretionary income OR the monthly payment you’d have on a plan with a fixed payment over 12 years, adjusted to your income. Payments are reevaluated and updated based on changes in your income, family size, and the amount of your Direct Loans. Outstanding balances are forgiven after 25 years.
Eligible Borrowers:
- Any Direct Loan borrower with an eligible loan type
Eligible Loans:
- Direct Subsidized and Unsubsidized
- Direct PLUS loans for students
- Direct Consolidation Loans
Income-Sensitive Repayment (ISR)
The ISR plan sets monthly payments based on your annual income with the caveat that the loan be paid in full within 15 years.
Eligible Borrowers:
- Only for FFELP Program loans
Eligible Loans:
- Subsidized and Unsubsidized Stafford Loans
- FFELP PLUS Loans
- FFELP Consolidation Loans
Pros and Cons of Income-Driven Repayment
Pros of Income-Driven Repayment:
- Your monthly payments would likely be more affordable
- Your monthly payments would decrease if your income decreased, so you wouldn’t be locked in to paying a certain amount each month even if an unforeseen circumstance arose in relation to your finances
Cons of Income-Driven Repayment:
- The amount you pay could be more than the standard repayment plan depending on the plan you choose
- You may pay more in interest with a longer repayment period
- These repayment options have various elements needed to qualify which could make them inaccessible to some borrowers
Graduated Repayment
Graduated repayment plans allow borrowers to start their payments off at a lower amount and gradually increase to the full payment over a 10-year period. This plan is ideal for people who plan to start their career at a lower income level or who don’t plan to dive into full-time work immediately after graduation.
Eligible Borrowers
All borrowers are eligible for this plan.
Eligible Loans
- Direct Subsidized and Unsubsidized Loans
- Subsidized and Unsubsidized Federal Stafford Loans
- all PLUS loans
- all Consolidation Loans (Direct or FFELP)
Pros of Graduated Repayment:
- The 10 year repayment period allows you to pay off your loans faster compared to other plans
- Your payments might align better with the entry-level wages many new graduates experience
Cons of Graduated Repayment:
- You would pay slightly more over time in comparison to the standard repayment plan as more interest would accrue while you’re making smaller payments
- You could be in a tough spot if your income doesn’t grow over time as you expect
Extended Repayment
Extended repayment options are available to all borrowers except those with Federal Direct Loans or Federal Family Education Loans that owe less than $30,000. This option allows for either a fixed or graduated payment, leading to full repayment by the end of a 25 year period.
This option is ideal for borrowers who have a hefty total loan amount and need a smaller monthly payment.
Eligible Borrowers
If you’re a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans.
Eligible Loans
- Direct Subsidized and Unsubsidized Loans
- Subsidized and Unsubsidized Federal Stafford Loans
- all PLUS loans
- all Consolidation Loans (Direct or FFELP)
Pros of Extended Repayment:
- Lower monthly payments in comparison to other plans
- You have the option to choose either fixed or graduated payments
Cons of Extended Repayment:
- There is no option for loan forgiveness as with the income-driven repayment options
- The longer repayment period would cause you to pay more interest over time in comparison to the other plans
So Which Option is Best for Me?
This is a big question, and it may be overwhelming to try to find the answer.
Our answer? The option that you can commit to paying both consistently and on time. Missing loan payments could hurt your credit score and thus your ability to engage in other life milestones such as financing a home or purchasing a vehicle.
You can use the government’s Loan Simulator to figure out which plans you may qualify for and how much you’d pay monthly and in the long run under each plan.