Student Loan Repayment Option
Federal student loans provide a number of repayment options to help ease the burden of paying back your loans. While in school, you’ll have the option to defer your payments while you’re getting an education and don’t have any income. After graduation, you can choose from several different repayment plans that allow you to pay off your loan over time based on your current financial situation.
1. Standard Repayment
If you choose the standard repayment option, you’ll repay your loan over 10 years. The interest rate on this option is fixed for the life of each loan. This means that it doesn’t change over time and it’s not tied to an index. Your minimum monthly payment will be $50, but since your interest rate is fixed, this amount may increase or decrease depending on how much you owe at the time of repayment.
The standard repayment option isn’t based on income—instead, it’s based on the amount borrowed and when you started making payments (for example: if you borrowed $20,000 with a 5% fixed-rate loan in 2013 and paid back $5/month per month until 2026).
2. Graduated Repayment
Graduated repayment is a plan that pays off your student loans faster than the standard 10-year repayment plan. This type of payment plan begins with lower monthly payments, then increases every two years (or longer) until you’re paying the standard amount. Graduated repayment may be a good option for you if you want to pay off your debt sooner or if your income increases over time.
Your payments start out low and increase every two years or more until they hit the standard amount after 10 years. If this sounds like what applies to you, keep reading!
3. Extended Repayment
Extended Repayment is a great option for those who have lower than average income, as it allows you to pay less each month. The major downside is that your payments are fixed for up to 25 years. You won’t be able to make any changes or switch plans until the end of that period.
If you want to use this plan and want to know more details, read our guide on how to apply for extended repayment.
4. Income-Based Repayment (IBR)
You may be eligible for Income-Based Repayment (IBR) if:
- Your monthly payments are high relative to your income and family size
- You have a federal loan (and some private lenders participate)
Income-Based Repayment is a repayment option that helps reduce the amount you owe each month. It’s based on how much money you make and family size, so it can lower your monthly payment quite significantly compared to other plans. That said, IBR does have some downsides—your interest will continue to accrue, which means more money owed over time. And in order to keep your subsidized loans from converting into unsubsidized loans (which would mean higher interest rates), borrowers must recertify annually.
5. Pay As You Earn (PAYE)
- The Pay As You Earn (PAYE) repayment plan is similar to the Income-Based Repayment (IBR) plan but even better. It’s designed to be used by those who went to school after July 1, 2014. If you use this option and your income is low enough, your payments will be 10% of discretionary income, which means that if you want to pay more than that amount, you can.
- There are some limitations on how long PAYE will last: no more than 20 years of payments can be made under it and then any remaining balance must be forgiven at that point.
6. Revised Pay As You Earn (REPAYE)
The Revised Pay As You Earn plan is a repayment plan available for new borrowers as of July 1, 2014. This repayment plan has a monthly payment that is 10% of discretionary income and a 20-year term. If you consolidate your loans into the REPAYE program, it will recalculate your monthly payment based on your current income and family size. If you are married, both spouses’ incomes count when determining eligibility for this repayment plan and how much they will pay each month toward their loan(s).
If you have graduate loans only, this repayment plan may be extended to 25 years if you earn more than $30,000 per year (or less but still above 150% of the poverty level).
7. Income-Contingent Repayment (ICR)
If you have a partial financial hardship, or if your loans were made to you directly by the United States Department of Education (Direct Loans), then you may qualify for Income-Contingent Repayment.
Your monthly payments are based on your income and family size. The lower your income, the smaller your monthly payment will be. When you recertify them every year, you’ll be able to see exactly how much money is left over after paying all of your expenses each month. If there’s still money left over after paying tuition/fees and other known expenses, it goes toward reducing what remains owed on student loans—and if there isn’t enough money left over after those things are paid off entirely within 12 months then they’ll just disappear altogether! That’s right: no more debt!
Income-Contingent Repayment plans vary slightly depending on who gave out the loan initially (for example private lenders vs federal government). For example, some require that students submit documentation annually with their applications; however others don’t require any documentation at all beyond basic personal information such as name address etcetera…
This is an overview of repayment options for federal student loans
This is an overview of repayment options for federal student loans. There are many different options depending on your situation, and not all of them are good for everyone.
Some options have higher interest rates than others, so you will want to consider which one offers more benefits to you in exchange for the higher interest rate. Some may have a lower monthly payment but higher overall cost over time because there is more interest being paid on top of the original loan amount.
Let’s take a look at some common repayment plans:
The student loan repayment process can be overwhelming, but it doesn’t have to be. By understanding your options and knowing what questions to ask before signing on the dotted line, you can make sure that you’re getting the best deal possible. It might take some research and digging into your finances, but if we all work together—students, parents, educators—we can make a difference!