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Standard Repayment Plan vs. student loan refinancing
Which is the better choice for your federal loans?
Signing up for the Standard Repayment Plan is one of the least-expensive ways to pay off your federal student loans. But you could pay them off just as fast at lower rates if you refinance with a private lender. Refinancing isn’t for everyone, though: You’ll lose many of the benefits that come with federal loans.
Standard Repayment Plan vs. refinancing
When deciding between the Standard Repayment Plan and refinancing your student loans, the main factor you need to consider is whether you want to keep your federal benefits or not. As you can see from the table below, signing up for the Standard Repayment Plan keeps you eligible for several federal forgiveness programs, as well as deferment and forbearance options you won’t find with private refinancing providers.
| Feature | Standard Repayment Plan | Refinancing |
|---|---|---|
| Typical rates | 4.53% to 5.3% | 2.5% to 18% |
| Available terms | 10 years | 5 to 25 years |
| Forgiveness options |
|
|
| Deferment and forbearance |
|
|
| Monthly payment on $10,000 loan balance* | $108.53 to $119.22 | $44.86 to $253.93 |
| Total cost on $10,000 loan balance* | $3,023.15 to $4,306.92 | $648.42 to $35,522.90 |
*This example assumes a $10,000 balance when the repayments kick in, including interest that added up during in-school deferment.
How the Standard Repayment Plan works
The Standard Repayment Plan for federal student loans works by dividing up your loan into fixed monthly repayments spread out over 10 years. Repayments kick in at the end of your six-month grace period after leaving school.
It’s the shortest term available for federal loans and generally the least-expensive option. However, it gives you higher monthly repayments than other options with longer terms.
How refinancing works
Refinancing works by taking out a new loan with a private lender and using that loan to pay off your existing student debt. Everything about your loan changes: You get new rates, new terms and even a new servicer.
Most private lenders only offer standard repayments for refinancing, which kick in immediately after your funds are disbursed. While you have the option of extending your loan over a longer term for lower monthly repayments, you lose access to benefits that come with federal loans. This includes a wide range of deferment, forbearance and forgiveness options that private lenders don’t offer.
This plan is generally best for students who work full time while in school or have a cosigner who can cover the cost while they study.
Which should I choose?
If you can comfortably afford repayments on the Standard Repayment Plan, chances are you make enough to qualify for a competitive deal with a refinancing provider. But there are a few situations when one option might be better than the other.
You might want to pick the Standard Repayment Plan if …
- You’re thinking of going back to school. Not all private lenders offer in-school deferment — and those that do are generally limited. Stick with standard repayments if you think you might need to defer.
- You have bad credit and no cosigner. Your chances of qualifying for better rates and terms than you already have are low without a cosigner.
- You might want to apply for forgiveness. Federal loans have more forgiveness options than private student loans. Even though you’ll have to switch to a different repayment plan based on your income, you’re eligible to do so at any time as long as your loans are still federal.
- You’re not set in your career. Many refinancing companies look at your employment history when you apply and tend to favor borrowers who are on a fixed, reliable career path.
You might want to refinance if …
- You want lower repayments. You often have the choice to pay back your debt over 15, 20 or even 25 years, which can give you lower monthly repayments than the Standard Repayment Plan.
- You want a shorter term. While you can pay off your federal loans at any time, it takes extra effort to make sure each repayment goes toward your principal and involves coordinating with your servicer each month. A shorter five- or seven-year repayment plan from a private lender can be easier to manage.
- You want to save on interest. If you’ve got a high salary and excellent credit — or a cosigner who does — you might qualify for lower rates than you have with your federal loans.
- You don’t like your servicer. One way to switch up the company that handles repayments is to refinance your loans — though you can also change your servicer using a federal Direct Consolidation Loan.
- You’re in a traditionally high-paying field. Many refinancing companies like First Republic Bank and Laurel Road have special deals for doctors, lawyers and members of other high-paying professions.
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What are the alternatives?
Not convinced the Standard Repayment Plan is right for you, but still want to keep your federal loans? Consider one of these alternatives:
- Take out a federal Direct Consolidation Loan. While this won’t give you lower rates, you can change servicers and qualify for the Standard Repayment Plan with a 30-year term.
- Sign up for the Pay As You Earn (PAYE) Repayment Plan. This plan allows you to make repayments of 10% of your income or what you’d pay on the Standard Repayment Plan — whichever is less. It could be a better option if you’re seeking Public Service Loan Forgiveness (PSLF) or just starting your career.
- Opt for the Graduated Repayment Plan. If you think your salary will increase over the next 10 years, you can start with a plan that gives you repayments that increase over time with a 10-year term.
Bottom line
Refinancing or signing up for the Standard Repayment Plan are both good options to pay off your federal student loans fast. Which one is best for you mainly depends on your career path and how much you want to pay each month. You can learn about more options by reading our guide to student loan repayment plans.
Frequently asked questions
Can I refinance while I’m in school?
Usually, no. Most refinancing companies require you to be in repayment before you can apply. Some might even require you to have a degree.
Am I eligible for PSLF on the Standard Repayment Plan?
No, to be eligible for PSLF, you must be enrolled in an Income-Driven Repayment (IDR) Plan. However, you can make the switch to an IDR Plan at any time as long as you don’t refinance with a private lender.
Can I defer private student loan repayments while in school?
Generally you can, though it depends on your lender. If you choose that option, you won’t have a standard repayment plan, but what most lenders call a deferred repayment plan.
The only time you can qualify for in-school deferment with a standard repayment plan on private student loan is if you decide to go back to school. And not all lenders offer this option.
When do I choose a repayment plan for my federal loans?
You typically don’t choose a repayment plan for federal student loans until after you graduate or otherwise drop below half-time enrollment. Your servicer should reach out to you with instructions for setting up an account and choosing a repayment plan. You can learn more with our article on how to prepare for student loan repayments.
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