Federal Student Loan Repayment Guide
Student loans have become almost a given in the college experience, with three quarters of the students take out at least one student loan while in school. The average borrower has $ 28,288 in student loan debt as they walk the podium to graduate.
After graduation, these loans need to be repaid, but understanding student loan repayment can be confusing. There are many different options for paying off federal student loans and settling a student loan payment, and it can be difficult to know which one to choose.
Use this handy guide to help you navigate the federal student loan repayment options available to you.
In this guide:
Basic repayment plans
|Standard repayment plan||Progressive repayment plan||Extended repayment plan|
|Monthly payment||Fixed payments||Lower payments to start that increase every 2 years||Fixed or progressive payments|
|Time limit||Up to 10 years (30 years for consolidation loans)||Up to 10 years (30 years for consolidation loans)||Up to 25 years|
|Pro||Pay less over time than other plans||Pay less per month upfront||Lower monthly payments|
|Con||High monthly payment||Increase loan repayments||Pay more in interest|
There are three types of basic repayment plans available from the US Department of Education designed for people who want a predictable, easy-to-prepare, and consistent plan.
Standard repayment plan
The Standard 10 Year Repayment Plan is the default repayment plan that applies to all federal student loans. Your payments are a percentage of the balance each month and are fixed for the term of the loan.
With a standard plan, you might end up paying a lot per month, but it’s also the fastest way to pay off your loans and you’ll pay less interest compared to longer repayment plans.
Progressive repayment plan
With a step-by-step plan, payments will start out small and increase over time. This plan can be good for someone who is just starting out in their career but can expect to make a lot of money later on.
People in STEM (science, technology, engineering, and math) fields could benefit from this plan because wages in these fields are generally higher than many other occupations and have a high demand for workers. You may, however, run into future problems if your higher loan payment is more than you can afford.
Extended repayment plan
For those who cannot afford a high monthly payment, the extended plan extends the loan up to 25 years. Your payments will be the lowest of all the basic plans, but you’ll pay a lot more interest in the long run.
Income-based repayment plans
|Monthly payment||10% of income||10-15% of income||20% of income or fixed payment on a 12-year repayment plan (whichever is less)||Amount based on annual income|
|Time limit||20 to 25 years||20 years||25 years||Up to 15 years|
|Pro||The outstanding loan balance will be canceled after 20 or 25 years||The outstanding loan balance will be canceled after 20 years||The outstanding loan balance will be canceled after 25 years||Payments change based on annual income|
|Con||Any canceled loan balance may be subject to income tax||Any canceled loan balance may be subject to income tax||Any canceled loan balance may be subject to income tax||Total payout over time may exceed that of the standard 10-year plan|
Income-driven plans fluctuate with your income. As you earn more, your payout amount will increase; if you are living in a period of low wages, your payment will decrease during that time.
There are four types of income-oriented plans, and while each of them seeks to help people make their payments on time, they have slight differences in terms, income suitability, and interest rates. .
Pay as you earn (PAYE)
The Pay as You Earn, or PAYE, plan is available on all Federal Direct Loans in addition to Parent PLUS Loans. Non-direct loans may be eligible if they are consolidated through the Direct Consolidation Loan program. Your payment is 10 percent of your discretionary income, which is left after food, shelter, clothing, and medical care or other necessities. The term is 20 to 25 years and any balance remaining after this date will be forgiven.
Review of compensation as you earn (REPAYED)
The revised Pay as You Earn plan, or REPAYE, has the same eligibility requirements as the PAYE plan. Your payments will also be limited to 10% of your discretionary income. The term is 20 years for undergraduate loans and 25 years for graduate and vocational loans, and any remaining balances will be canceled after this date.
>> Read more: PAYE vs. REFUND
Income Based Reimbursement (IBR)
The Income Based Repayment Plan, or IBR, is available not only with Direct Loans, but also with Federal Stafford Loans and Consolidation Loans. The term is 20 years, and you will also see your outstanding balance canceled after this period. Payments represent 10-15% of your discretionary income.
Income Based Reimbursement (ICR)
The Income Contingency Plan, or ICR, is available for all direct loans, including direct consolidation loans, and your payment is either 20% of your discretionary income or the amount you would pay on a repayment plan. fixed over 12 years, adjusted based on your actual income. The term is up to 25 years, and you still have forgiveness after that date for any remaining balance.
Income Based Reimbursement (ISR)
The income-based repayment plan bases your payment amount on your annual income and the term is only 15 years. It is available for all Federal Stafford loans, as well as for FFEL PLUS and Consolidation loans.
The payment amount changes every year based on your salary increase or decrease, and you do not get your balance after term ends. With this plan, you will also pay a lot more interest than with the standard 10 year plan.
Repayment after federal student loan consolidation
When you take out a direct consolidation loan for your federal student debt, you will find that income-oriented plans are still available to you.
During the consolidation process, you will be offered a variety of repayment plans depending on the type of loans you are consolidating. As you read above, not all income-based repayment plans are available for every type of federal loan, so you will need to understand what type of loan you have before you consolidate.
Once your Consolidation Loan is completed, all of your existing loans will be repaid, with only the Consolidation Loan remaining to be repaid. You will have a monthly payment based on the plan you chose during the consolidation process.
>> Read more: Can You Refinance Federal Student Loans?
Choose the repayment plan that’s right for you
With all of these options, it can be a bit confusing which one to choose. Before making a decision, think about your current and future financial situation and talk to your loan manager.
It’s not just about what you can afford now, but what you may be able to afford in five or even ten years. What are your long-term goals for your personal finances, family, and work situation?
Personal preferences will also play a role. Do you prefer to have a very small monthly payment that you make for a long time, or are you ready to tighten your belt and invest more in your loans in order to pay them off quickly and save money? All of these factors and many more will be part of your decision making process.
Check out the federal student loan repayment infographic below to better visualize your options:
No matter what type of federal student loan you have, there are repayment options for you.
Consider all of these options before you commit, and make sure that the choice you make is the best for you and your family, not just now, but years from now as well.
Besides payment plans, there are other considerations, including canceling public service student loans, and these may also be worth exploring. You can learn more about student loan forgiveness with our guide.