top of page

What to Know About Student Loan Repayment Options

Student loan repayment has begun, but for many borrowers, finding the repayment plan that works best with their lifestyle can be tough. 

 

Here we breakdown the different repayment options and how they can work with your lifestyle and goals.

student loans image.png

Standard repayment

Standard repayment lasts 10 years and is the best one to stick with to pay less in interest over time. However, if you need more money in your pocket now, you will probably want to pass on this one if you have a lower income.

Income-driven repayment

Income-driven repayment (IDR) options tie the amount you pay to a portion of your income and extend the length of time you're in repayment to 20 or 25 years. When the term is over, you can get income-driven loan forgiveness for your remaining debt. IDR is best if you're having difficulty meeting your monthly payment and need a smaller monthly payment. However, a lower payment will result in you paying more interest over time. 

There are four types of IDR plans.

  • Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan

    • If you need a low monthly payment, this might be the best plan for you—especially if you have a lower income. Your monthly repayment will generally be 5 percent of your discretionary income. Payments can be as small as $0 if you're unemployed or underemployed and can change annually.

  • Pay As You Earn (PAYE) Repayment Plan

    • Generally 10 percent of your discretionary income.

  • Income-Based Repayment (IBR) Plan

    • Generally 10 percent of your discretionary income if you're a new borrower on or after July 1, 2014* OR 15 percent of your discretionary income if you're not a new borrower on or after July 1, 2014.

  • Income-Contingent Repayment (ICR) Plan

    • 20 percent of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.

Under all four plans, any remaining loan balance is forgiven if your federal student loans aren't fully repaid at the end of the repayment period. For any income-driven repayment plan, periods of economic hardship deferment, periods of repayment under certain other repayment plans, and periods when your required payment is zero will count toward your total repayment period.

 

Although you may be able to temporarily postpone repayment altogether with deferment or forbearance, it is usually better to apply for income-driven repayment. Income-driven repayment plans can reduce payments to $0 — and those payments count toward forgiveness. Whereas forbearance allows interest to accrue on your loans without counting toward forgiveness.

Graduated repayment

Graduated repayment lowers your monthly payments and then increases the amount you pay every two years for a total of 10 years.

  • If your income is high, but you want lower payments in the short term, a graduated plan may make sense for you. It can help you put that money towards other things like a down payment on a house in the short term. However, you will want to be confident that you will be able to make the payments down the line. Initial payments on the graduated plan can eventually triple in size, which could put you in a touch financial position later on.

Extended repayment starts payment amounts low and then increases every two years for a total of 25 years. Or you can choose a fixed version which splits payment amounts evenly over 25 years. You must owe more than $30,000 in federal student loans to qualify for extended repayment.

Example Repayment Situations

Aidan owes $26,946 (national average) in student loan debt with an interest rate of 3.9%. He earns $65,000 each year and is single with no dependents. 

 

  • Under the Standard Repayment Plan, he would pay $272 per month through September 2033. 

  • Under the SAVE Plan, he would pay $268 per month to start but payments would increase with his income (which increased by 5% per year) to $440. He would pay off his loans by May 2031. 

  • Under a Graduated Repayment Plan, his initial payments would be a low $152 monthly but increase to $455 over time. He would pay off his loans by September 2033. 

  • Under the Income-Contingent Repayment Plan, his initial monthly payments would be $235 monthly and gradually increase to $250 monthly. He would pay off his loans in July 2035. 

 

Hannah also owes $26,946 in student loan debt with an interest rate of 3.9%. Hannah is married with one child and makes $50,000 each year. Her partner makes $42,000 per year and owes $20,000 in student loans. They file taxes jointly. 

 

  • Under the Standard Repayment Plan, Hannah would pay $272 per month through September 2033. 

  • Under the SAVE Plan, she would pay $173 per month to start but payments would increase with her income (which increased by 5% per year) to $378. She would pay off her loans by June 2034. 

  • Under a Graduated Repayment Plan, her initial payments would be a low $152 monthly but increase to $455 over time. She would pay off her loans by September 2033. 

  • Under the Income-Contingent Repayment Plan, her initial monthly payments would be $251 monthly and gradually increase to $281 monthly. She would pay off her loans in February 2034.

Calculate Your Payment Under Each of These Options

Before changing student loan repayment plans, plug your information into the Education Department's Loan Simulator to see what you’ll owe on each plan. Everyone’s situation is a little bit different and the only way to know which plan is best for you is to have repayment options tailored to you!

bottom of page