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Student loan repayment programs explained
Explore the different options for paying back your student debt.
When it comes to student loans, getting one is sometimes the easy part. Repayments, however, can be tricky: Student loans are one of the few types of debt you can take on without knowing exactly how or when you’re going to pay it back.
That’s why they come with multiple repayment options, which you can sometimes choose after you leave school. Here, we help break down repayments so that you can narrow down a plan that fits your budget and long-term goals.
Federal repayment programs
Chances are that if you have student debt, you have federal debt. This type of debt is usually less expensive than private student loans and easier to qualify for.
But one of the major perks of federal loans are repayment programs. Here’s how these repayment plans generally work and how long you can take with repayments.
| Program | Eligible loans | How it works | How long you have to repay | |
|---|---|---|---|---|
| Standard Repayment Plan |
| Make the same fixed repayment each month until you’ve paid off your loan. | Up to 10 years for standard loans Up to 30 years for consolidation loans | Read more |
| Graduated Repayment Plan |
| Repayments start low and increase every two years. | Up to 10 years for standard loans Up to 30 years for consolidation loans | Read more |
| Extended Repayment Plan |
| Extends loan terms with either standard fixed payments or graduated payments that increase over time. | Up to 25 years | Read more |
| Revised Pay As You Earn Repayment Plan (REPAYE) |
| Make monthly repayments that reflect 10% of your monthly discretionary income . Repayment amounts are recalculated every year and consider both your and your spouse’s income, if you’re married, regardless of how you file your taxes. After 20 or 25 years of repayments, the government forgives any debt that remains. | Up to 20 years for undergraduate loans Up to 25 years for graduate loans | Read more |
| Pay As You Earn Repayment Plan (PAYE) |
| Make monthly repayments that reflect 10% of your monthly discretionary income. Repayment amounts are recalculated every year and consider your spouse’s income only if you file a joint tax return. After 20 years of repayments, the government forgives any debt that remains. | Up to 20 years | Read more |
| Income-Based Repayment Plan (IBR) |
| Make monthly repayments the reflect 10% to 15% of your monthly discretionary income. Repayment amounts are recalculated every year and consider your spouse’s income only if you file a joint tax return. After 20 or 25 years of repayments, the government forgives any debt that remains. | 20 to 25 years | Read more |
| Income-Contingent Repayment Plan (ICR) |
| Pay the lesser of either 20% of your discretionary income or the amount you’d have paid if you had a fixed plan over 12 years. Repayment amounts are recalculated every year and consider your spouse’s income only if you file a joint tax return. After 25 years of repayments, the government forgives any debt that remains. | Up to 25 years | Read more |
| Income-Sensitive Repayment Plan |
| Monthly repayments are based on your income. Amounts vary by lender. | Up to 15 years | Read more |
How to choose a federal repayment plan
Picking the best repayment program for you depends on two factors:
- How much you can afford to pay each month.
- How quickly you can pay off your student debt.
Ideally, you’ll strike a balance between these two, choosing a plan that gives you affordable monthly repayments without stretching your loan term to 25 years. That way you won’t be in danger of defaulting or potentially paying as much in interest as you did for your education.
The problem? It’s difficult to predict how much money you’re going to make in 10 years when you haven’t even landed your first job. Luckily, you can always go back and change your repayment plan by contacting your loan servicer — the company that you make repayments through. You can also pay off your loan early at any time at no extra cost.
You might want to stick with a program that makes sense for you now and change it when you have a better sense of your career path. But that can get complicated when you factor in forgiveness programs.
Repayment plans and forgiveness programs
As we’ve broken down in the chart above, borrowers who take on income-driven programs are eligible for forgiveness plans after 25 years of repayments. That might not be worth it if you end up making a high salary.
You can have your student debt forgiven more quickly if you’re eligible to enroll in the Public Service Loan Forgiveness Program or the Teacher Loan Forgiveness Program.
| Public Service Loan Forgiveness | Teacher Loan Forgiveness | |
|---|---|---|
| How it works | The government forgives your student loan balance after you make 120 repayments while working full time at a public service job with a qualified employer. | The government forgives up to $17,500 of your federal student debt after you work at a low-income school or education service agency for five consecutive years. |
| Who qualifies |
| Full-time teachers who have taught five years in a row at a low-income school or educational service agency. To qualify, you must have a bachelor’s degree, state certification and no temporarily waived certifications or licenses. At least one of your five consecutive years of teaching must be after 1998, and the debt you’d like forgiven must be from education earned before the qualifying years. You also can’t have any debt from a Direct or FFEL loan issued before October 1, 1998. Additional requirements may apply depending on your situation. |
| Eligible loans | All Direct Loans | All Direct and FFEL loans |
Think you might want to take advantage of these programs? Federal Student Aid recommends that you choose one of the income-driven repayment plan options, because if you end up taking a job with a low salary (or just have a lower salary that typically comes early in a career), your repayments could be as low as a few dollars a month.
Under Public Service Loan Forgiveness, the earlier in your career that you start working for an eligible employer, the more you’ll likely save on your student debt. That’s because you’ll start working toward your 120 qualifying repayments earlier — repayments based on a starting salary — ultimately leaving a larger student loan balance available for forgiveness after you’ve satisfied the program’s requirements.
The IRS considers most forgiven debt amounts as income — and student loans are no exception. Prepare to pay taxes on any student loans you’ve had forgiven by the government.
Read more about your forgiveness options
Back to topWhat if I don’t qualify for a federal forgiveness program?
Not everyone’s interested in public service or education. You can still choose an income-driven repayment plan and have your debt forgiven after 20 to 25 years. But you might not save the most that way.
In fact, your Standard Repayment Plan might just be the least expensive way to pay off your student debt in the long run. You might also get out of debt faster than through other repayment plans.
If you already have a job lined up, crunch the numbers and see if you can afford a Standard Repayment Plan based on your salary.
You can even use the government’s repayment estimator to see how much you’d have to pay, using these estimates to compare your plan options. Remember, you’ll likely have the chance to change it later on if you take a job with a lower salary than you’d planned for.
Understanding income-driven repayment
Income-driven repayment programs are designed to go up and down with your income. They can be a kind of buffer for long-term unemployment, taking a pay cut or otherwise changing your career path. This protection can be especially comforting for people who actively participate in the gig economy, where staying at a job for more than two years is often unheard of.
It might be a good idea to sign up for an income-driven repayment plan if:
- You aren’t currently working and you’re still in the process of looking for a full-time job.
- You aren’t able to afford the monthly repayments on the standard plan.
- You have a low amount of debt compared to your income.
- You’re considering changing careers in the near future.
- You’d rather repay lower monthly amounts than get out of debt quickly.
A closer look at how income-driven repayment plans work
The government offers four income-driven repayment plans: Revised Pay As You Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE), Income-Based Repayment Plan (IBR) and Income-Contingent Repayment Plan.
At first glance, it looks like they work the same way:
- You pay a percentage of your post-tax income each month.
- The government recalculates your repayment amount each year based on your income, possibly your spouse’s income and debts and your family size.
- The government forgives whatever’s left of your loan balance after 20 or 25 years.
Where they differ is when it comes to who qualifies, how much you repay each month and how long it takes to pay off your debt.
Eligibility criteria for income-driven repayment plans
| Income-driven plan | Who qualifies | Monthly payments |
|---|---|---|
| REPAYE | Any borrower with eligible federal loans. | Typically 10% of your monthly discretionary income |
| PAYE | Anyone whose PAYE repayment amount would be less than a repayment on a 10-year Standard Repayment Plan. Use the government’s repayment estimator to see if you qualify — though, generally, if your debt is higher than your income, you’re eligible. |
You typically won’t pay more than the equivalent of a monthly repayment on a 10-year Standard Repayment Plan |
| IBR | Anyone whose IBR repayment amount would be less than a repayment on a 10-year Standard Repayment Plan. You can use the government’s repayment estimator to see if you qualify — though, like PAYE, if your debt is higher than your income, you’re eligible. |
You typically won’t pay more than the equivalent of a monthly repayment on a 10-year Standard Repayment Plan |
| ICR | Any borrower with eligible federal loans. ICR is the only income-based plan available for Parent PLUS Loans, though it must be consolidated with other federal student debt using a Direct Consolidation Loan. | The lesser of:
|
How much will I pay each month?
| Income-driven plan | Monthly repayments |
|---|---|
| REPAYE | Typically 10% of your monthly discretionary income |
| PAYE |
You typically won’t pay more than the equivalent of a monthly repayment on a 10-year Standard Repayment Plan |
| IBR |
You typically won’t pay more than the equivalent of a monthly repayment on a 10-year Standard Repayment Plan |
| ICR | The lesser of:
|
How to calculate your monthly discretionary income
How long does each program last?
| Program | Time before forgiveness |
|---|---|
| REPAYE |
|
| PAYE | 20 years |
| IBR |
|
| ICR | 25 years |
How to sign up for a federal repayment plan
Once you’ve decided on a program, it’s time to prepare for your student loan repayments. . The straightforward process starts with your loan servicer.
First, your loan servicer will reach out to you to set up an account. Your servicer will ask you to create a username, several passwords and choose a bank account to use for repayments.
It should also guide you through the process of choosing a repayment plan, possibly even calculating for each plan how much your monthly repayments will be and how long you’ll need to pay off your debt.
Private loan repayment programs
With private student loans, repayments begin as soon as the school receives the funds. They typically come multiple repayment options for while you’re in school, but require full, fixed repayments after you graduate.
In-school repayment options
Often private lenders offer the following repayment options for while you’re enrolled as a student:
- Deferment. Completely hold off on repayments.
- Interest-only. Only make payments on interest.
- Fixed repayments. Make fixed, reduced repayments each month, usually $25.
- Full repayment. Get started on standard repayment plans right away.
Why not just defer?
Deferment might be the cheapest option in the short-term. But you often end up paying more because of something called interest capitalization.
Interest capitalization is when a lender adds any unpaid interest to your loan balance when you start making full repayments. Since interest is a percentage of your loan balance, you’re essentially paying interest on interest. Making even small payments toward your loan while in school can reduce the overall cost.
Repayment options after graduation
Private student loans generally provide fewer options than federal loans when it comes to repayment after you graduate. Many only offer standard repayment plans, though you can find a few offering income-based or graduated repayments. Some also offer income-based repayment if you’re in danger of defaulting on your student loans or your cosigner’s financial situation has changed (due to a divorce, for example).
Deferment and forbearance on private loans
That doesn’t necessarily mean you’ll need to make your full repayments all of the time. Nearly all private lenders offer forbearance or deferment options that allow you to pause your loan if you find yourself facing temporary financial hardship or other extreme situations, like deployment to a war zone.
If none of your lender’s options work for you, consider refinancing your private student loan with another lender offering more flexibility.
Interested in refinancing? Compare your options
Updated April 4th, 2020
Bottom line
Unlike private student loans, federal student loans come with many repayment options. Regardless of the loan you’ve taken on, a Standard Repayment Plan will typically get you out of debt more quickly and save you on interest. That is, unless you intend to apply for a federal forgiveness program.
Want to learn more about what happens after you get a student loan? Read our comprehensive guide to student loans.
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