It’s unfortunate. But it’s unlikely that the federal government is gonna completely cancel all your student loan debt anytime soon.
Sure, the payment freeze keeps getting extended (most recently through August 31, 2022), meaning you don’t have to make monthly payments right now. But will this last forever? Probably not.
So, before that inevitable day comes and you have to make your next payment, it’s a good idea to prepare yourself and make sure you’re enrolled in the right federal student loan repayment plan. Why?
We’ll answer that question in just a minute. But, before that, let’s see an overview of what you can expect to learn by reading this blog post! Here’s what we’ll cover:
- An overview of each of your student loan repayment options
- How to choose the best plan for your financial situation and goals
- How to change your federal student loan repayment plan
Sounds good, right? Great, let’s start by going back to your first question!
Why It’s Important to Choose the Best Repayment Plan for You
When you graduate, one of the biggest financial decisions you’ll make is how to repay your student loans. Why do we say that? A few reasons that we’re sure you’ll want to avoid because choosing the wrong repayment plan could:
- Have you making monthly payments that are completely unrealistic for your current income and financial obligations.
- Cost you thousands of dollars in interest over the life of your loan.
- Make you feel that, no matter how much you pay, the balance never goes down.
- All of the above.
So, when we say it’s important to consider which of the repayment plans is best for you, we really mean it! But we understand if the following question stops you from taking action…
Why Should I Change My Current Student Loan Repayment Plan Now?
If you’re reading this post during the ongoing pause on student loan payments, you may be wondering…
Why should I enroll in a repayment plan if loan forbearance could be extended again?
It’s a good question – especially since the Biden administration is now expected to extend the pause (again) through August 31, 2022.
The answer? Making regular student loan payments right now is one of the best strategies to pay off your student loans as fast as possible. Why?
Because, during this pause on payments, your student loans aren’t accruing interest. And that means you get to focus entirely on paying down the principal balance (AKA the actual amount you originally agreed to borrow).
But that’s not the only reason!
There are also income-driven repayment plans that offer student loan forgiveness after you’ve been enrolled for a set number of years. The sooner you get enrolled in an income-driven repayment plan, the sooner you can have whatever debt you’re not able to pay forgiven.
So, how do you decide which plan is best for you? To start, let’s take a look at what each plan offers.
Overview of the 8 Federal Student Loan Repayment Plans
It can be challenging to understand why you would choose one plan over another to pay back your federal student loans. But we’ve got you covered! Here’s what you need to know about each of the 8 student loan repayment options.
Standard Repayment Plan
This is the plan that most federal student loan borrowers are on by default. If you’re on this repayment plan, you’ll make fixed monthly payments for 10 years.
How much will you pay per month on the Standard Repayment Plan? It depends on your outstanding loan balance. If you stick with this plan for the entirety of your loan, you’ll make 120 monthly payments that will cover the cost of the loan and the interest accrued.
For example, let’s say your outstanding student loan balance is $42,000. Well, to get a rough idea of how much you’ll pay each month, just divide that number by 120 and you’ll see it’s $350.
Now, notice we said “rough idea” because that simple calculation doesn’t account for any additional interest you’ll need to pay (once the pause on student loan payments ends). For a more accurate estimate of your monthly payments, use this student loan payment calculator.
Eligible loans for the Standard Repayment Plan
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans
- FFEL Consolidation Loans
Graduated Repayment Plan
The Graduated Repayment Plan starts with low payments and then gradually increases your monthly payment amount over time. This plan is best for borrowers who currently can’t afford the high, fixed monthly payments of the Standard Repayment Plan but expect their income to increase steadily over time.
The repayment period is between 10-30 years for the Graduated Repayment Plan, depending on your outstanding student loan debt balance.
Eligible loans for the Graduated Repayment Plan
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans
- FFEL Consolidation Loans
Extended Repayment Plan
The Extended Repayment Plan is a great option for borrowers who want the best of the Standard and Graduated Repayment Plans. This plan would allow you to spread your loan payments out over a repayment period of up to 25 years while gradually increasing the monthly payment amount.
Eligible loans for the Extended Repayment Plan
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans
- FFEL Consolidation Loans
Revised Pay As You Earn (REPAYE)
The Revised Pay As You Earn Repayment Plan (REPAYE) is one of the income-driven repayment plans we mentioned earlier. The REPAYE plan offers lower monthly payments than the Standard, Graduated, and Extended repayment plans. But you will end up paying more interest over the life of your loan.
How much will you pay per month with the Revised Pay As You Earn Repayment Plan? On this repayment plan, your monthly payment will be 10% of your monthly discretionary income.
The repayment period for the REPAYE Plan is 20 years for undergraduate student loans and 25 years for graduate student loans. If you still have an outstanding loan balance after that period ends, your remaining loan balance will be forgiven.
Eligible loans for the REPAYE plan
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
What is discretionary income?
Discretionary income is the amount of income you have left each month after subtracting your mandatory expenses from your total monthly income. Mandatory expenses include things like rent, food, and transportation.
Pay As You Earn (PAYE)
The Pay As You Earn (PAYE) Repayment Plan is similar to the REPAYE Plan. But there are a few key differences.
The PAYE Repayment Plan caps your monthly student loan payment at 10% of your discretionary income with the added condition that you’ll never pay more than you would with the Standard Repayment Plan.
However, the biggest difference between the two plans is that REPAYE is available to all borrowers, regardless of income level. PAYE is not. PAYE is only available to borrowers who have demonstrated that they can’t afford monthly payments under the Standard Repayment Plan.
Under the PAYE plan, you’ll also become eligible for student loan forgiveness if you still have an outstanding balance after 20 years, regardless of whether the loans were for undergraduate or graduate study.
Eligible loans for the PAYE plan
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
Income-Based Repayment (IBR)
The Income-Based Repayment Plan is another income-driven repayment plan for borrowers who are struggling to make their monthly student loan payments. This plan caps your monthly payment at 10% of your discretionary income if you borrowed on or after July 1, 2014, or 15% if you borrowed before then.
Under this plan, your monthly payment can be as low as $0 per month, depending on your income. Your payment would never be more than the amount you would pay under the Standard Repayment Plan.
The IBR plan also offers loan forgiveness after 20 years of repayment for new borrowers (on or after July 1, 2014) or after 25 years of repayment for not new borrowers (before July 1, 2014).
Eligible loans for the IBR plan
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
- Subsidized Federal Stafford Loans (from the FFEL Program)
- Unsubsidized Federal Stafford Loans (from the FFEL Program)
- FFEL PLUS Loans made to graduate or professional students
- FFEL Consolidation Loans that did not repay any PLUS loans made to parents
Income-Contingent Repayment (ICR)
The Income-Contingent Repayment plan is another option for borrowers who need income-driven monthly payments. This plan caps your monthly payment at whichever of the following two options is less:
- 20% of your discretionary income
- The amount of a fixed payment over 12 years, adjusted according to your income.
This plan also offers loan forgiveness after 25 years of repayment.
Eligible loans for the ICR plan
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
- Direct Consolidation Loans that repaid PLUS loans made to parents
Income-Sensitive Repayment (ISR)
The Income Sensitive Repayment plan is another plan for borrowers with low income. But it is not considered an income-driven repayment plan. Unlike the income-driven plans that base the amount of your payments on your discretionary income, the ISR plan bases the amount of your monthly payments on your annual income and loan balance.
Under the ISR plan, the repayment period is 10 years and does not lead to loan forgiveness.
This plan is also only available for borrowers with Federal Family Education Loans.
Eligible loans for the ISR plan
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans
- FFEL Consolidation Loans
Which Repayment Plan Is Best for You?
The best student loan repayment option for you will depend on your income, the size of your loan, and how quickly you want to pay off your debt. But here are some recommendations based on a few common scenarios and goals for federal student loan borrowers.
If you’re on a tight budget
The Income-Based Repayment Plan (IBR) is a good option if you have a tight budget and need a lower monthly payment. Under IBR, your monthly payment is capped at 10% or 15% (depending on when you borrowed) of your discretionary income. After 20-25 years of regular payments, any remaining balance on your loans will be forgiven.
You might also consider the Pay As You Earn Repayment Plan (PAYE) if you fit the eligibility requirements. With PAYE, your student loan payments are capped at only 10% of your discretionary income and become eligible for student loan forgiveness after 20 years of qualifying payments.
If you expect your income to increase soon
If you’re not making much money right now but expect your income to increase soon, you can consider the Graduated Repayment Plan or Extended Repayment Plan. With either plan, your monthly payments will start low and gradually increase over time.
If you want to qualify for student loan forgiveness
If you want to qualify for student loan forgiveness to have any remaining debt forgiven after a set number of years, you’ll want to choose one of the income-driven repayment plans:
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
Depending on your career field, you might also be eligible for student loan forgiveness programs. For example, if you’re a public school teacher, you can apply for the Teacher Loan Forgiveness Program.
There’s also the Public Service Loan Forgiveness program which can lead to student loan forgiveness in just 10 years if you meet the eligibility requirements.
If you want to pay off your student loans fast
If you want to pay off your student loans fast, the best student loan repayment plan is the Standard Repayment Plan because it will make sure you pay off your loans in full within 10 years.
If you want to pay the least in interest
If you want to pay the least in interest, the best student loan repayment plan is also the Standard Repayment Plan. Because this plan makes sure you pay off your loans the fastest, your loan balance has less time to accrue interest.
What about private student loans?
Unlike federal student loans, there are no standardized student loan repayment plans for private loans. Each lender decides which repayment plans to offer borrowers. In other words, to find out what repayment plans are available for your private student loans, you’ll need to contact your lender directly.
How to Change Your Federal Student Loan Repayment Plan
Decided you’d like to change your federal student loan repayment plan now that you know how to pick the best one for you? Great! Here’s how you do it:
- Find the contact info of your loan servicer. Your loan servicer is the company that handles the billing and other services for your federal student loans. You can find the name and contact information for your loan servicer on your monthly billing statement or your “Account Dashboard” on StudentAid.gov.
- Contact your loan servicer. Let them know in which repayment plan you’d like to enroll. This process should always be free.
- Complete and submit the paperwork. For example, if you want to enroll in one of the income-driven repayment plans, you’ll need to submit an application which you can get from your lender or the Federal Student Aid department. (You can also let us make this process wayyyy easier for you by signing up for Scholly PayOff!)
You can change your repayment plan as often as you want, but there may be limits on how often you can do so.
Final Thoughts
The pause on student loans (unfortunately) isn’t gonna last forever. So, do yourself a favor and prepare yourself to pay back your student loans using the repayment plan that makes the most sense for you. We hope the information we’ve shared in this post helps you do exactly that!
And if you want more tips and advice related to student loans check out the rest of our blog where we discuss topics like how to refinance student loans and what happens if you don’t pay your student loans.