Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
When it’s time for borrowers to repay their federal student loans, they’re typically placed on the Standard Repayment Plan, which requires fixed monthly payments for 10 years. However, the standard plan isn’t right for everyone. Fortunately, you have alternative student loan repayment options. Whether you want to lower your monthly payment, pay off your debt faster, or get on a qualifying plan for Public Service Loan Forgiveness (PSLF), you can find a repayment plan that fits your situation.
8 Student Loan Repayment Options
The government offers eight different student loans repayment options for Direct Loans. In August, the Biden-Harris administration also announced its intention to introduce a new income-driven repayment plan that would cap payments on undergraduate student loans at 5% of a borrower’s discretionary income and offer forgiveness after 10 years of repayment to borrowers who owe $12,000 or less. It’s not yet known when this plan will be implemented, but it could provide significant relief to debt-burdened borrowers. Before payments resume in fall 2023, it's a good idea to review the various repayment plans and find the one that might work best for you. Here’s what to know about your options for paying off student loans.
1. Standard Repayment
Unless you choose an alternative repayment plan, your loans will automatically go on the standard plan.
How It Works
The Standard Repayment Plan involves fixed monthly payments over 10 years. You’ll pay the same amount each month and be debt-free after 10 years of repayment. (If you consolidate your federal student loans into one loan, you’ll have 10 to 30 years to pay it off.)
Pros and Cons
Pros
Cons
Fixed monthly payments may be easier to budget for
Monthly payments may be higher than what they would be on other plans
Your debt will be fully paid off after 10 years
Not a qualifying repayment plan for Public Service Loan Forgiveness (PSLF)
You’ll pay less interest than you would on some other plans
Monthly payments are not adjusted if your income changes
2. Graduated Repayment
The graduated repayment plan typically spans 10 years, but your payments will change over time. The only exception is if you have a consolidation loan. In that case, you can choose terms between 10 and 30 years, depending on your loan amount.
How It Works
On the graduated repayment plan, you’ll pay off your student loan debt over a 10-year period, or potentially longer if you have a consolidation loan. Your payments will start out smaller and increase every two years. This plan might be appealing to borrowers who aren’t making a lot of money after college but expect their income to grow in the future. Your final payments will never be more than three times your initial payments. If your first payments are $100, for instance, your final payments won’t be more than $300.
Pros and Cons
Pros
Cons
More affordable monthly payments in the beginning
Changing payments could be difficult to budget for, particularly if your income doesn’t increase as expected
Pay off debt in 10 years
Pay more interest overall than you would on the standard plan since you’ll be making less headway on your principal balance in the beginning
Not a qualifying plan for PSLF
3. Extended Repayment
The extended repayment plan is another option for paying off student loans that may appeal to borrowers who owe more than $30,000 and want more than 10 years to pay off their student debt. The price of college over time may mean that more students owe more in student loans and need additional time to repay it.
How It Works
The extended plan gives you 25 years to repay your student loans. You can choose whether to make fixed monthly payments or graduated payments that start smaller and increase over time. To be eligible for the extended plan, you must owe more than $30,000 in Direct or FFEL loans, and you can’t have had an outstanding balance on a Direct or FFEL loan as of Oct. 7, 1998.
Pros and Cons
Pros
Cons
More time to pay off your debt
Will cost you more in interest overall
Lower monthly payments
You must have more than $30,000 in outstanding loan debt to be eligible
Choice between fixed and graduated payments
Not a qualifying plan for PSLF
4. Income-Based Repayment
The Income-Based Repayment (IBR) plan is one of four income-driven student loan repayment options that adjust your monthly student loan payments in accordance with your income and family size.
How It Works
The IBR plan adjusts your monthly payments to 10% of your discretionary income if you were a new borrower as of July 1, 2014. If you borrowed student loans before that date, your monthly payments will be set at 15%. Your repayment term also depends on when you borrowed — it’s 20 years for those who borrowed after July 1, 2014, and 25 years for those who borrowed before that date. To qualify, you must demonstrate partial financial hardship. Basically, your payments on IBR need to be less than what they would be on the standard 10-year plan. If you qualify, you can enjoy an interest subsidy. This means that if your monthly payments on any subsidized loans don’t cover your full student loan interest charges, the government will cover the difference for your first three years on the plan.
Pros and Cons
Pros
Cons
Payment may be as low as 5% of discretionary income
Payments greater and terms longer for borrowers who took out loans before July 1, 2014
Qualifying plan for PSLF
Must show partial financial hardship to qualify
Interest subsidy on subsidized loans for three years
No interest subsidy on unsubsidized loans
5. PAYE
The PAYE plan may be a good repayment option for student loans for borrowers looking for an income-driven plan, as it has both one of the lowest repayment caps (10%) and shortest terms (20 years).
How It Works
On the PAYE plan, your payments are set to 10% of your discretionary income, and repayment terms are set at 20 years. If you still have a balance at the end, it could be forgiven. As with IBR, you can only qualify for PAYE if your payments on it would be less than what they’d be on the standard 10-year repayment plan. You also can’t have borrowed loans before Oct. 1, 2007, and you must have borrowed a Direct or FFEL Loan after Oct. 1, 2011. PAYE has the same interest subsidy as IBR. The government will cover any unpaid interest charges on subsidized loans for your first three years on the plan.
Pros and Cons
Pros
Cons
Adjusts your payments to 10% of discretionary income
Must show partial financial hardship to qualify
Offers forgiveness after 20 years of on-time payment
Not available if you borrowed loans before Oct. 1, 2007
Government offers interest subsidy on subsidized loans for three years
No interest subsidy on unsubsidized loans
Qualifying plan for PSLF
6. REPAYE
A more recent version of PAYE, the REPAYE plan may be more accessible to borrowers who don’t meet the partial financial hardship requirement to qualify for PAYE or IBR.
How It Works
Any student loan borrower can apply for the REPAYE plan, as long as they hold student loans and not loans made to parents. The REPAYE plan sets your payments at 10% of your discretionary income. Repayment terms are extended to 20 years for undergraduate loans and 25 years for graduate loans. The REPAYE plan has an even better interest subsidy than PAYE and IBR. The government will cover your remaining interest charges for the first three years on the plan on subsidized loans and 50% of the remaining interest charges after that. Plus, it will cover 50% of the remaining interest charges on unsubsidized loans throughout your time on the plan. One downside of REPAYE: If you’re married, the REPAYE plan takes both partners’ incomes into account when calculating your monthly payments, even if you file taxes separately.
Pros and Cons
Pros
Cons
Adjusts payment to 10% of monthly income
Graduate school loans have a longer repayment term of 25 years
Anyone is eligible (except for parent borrowers)
If you’re married, both incomes are taken into account, even if you file taxes separately
Best interest subsidy of all the income-driven plans
No cap on payments. If your income increases, payments could increase to greater than what they’d be on the standard plan
Qualifying plan for PSLF
7. Income-Contingent Repayment
The Income-Contingent Repayment (ICR) plan has a higher monthly payment than the other income-driven plans, but it’s the only one available for parent loans.
How It Works
The ICR plan sets your monthly payment to 20% of your discretionary income or the amount you’d pay on a fixed plan of 12 years, whichever is lower. It also extends your loan terms to 25 years. Unlike the other plans, it doesn’t come with an interest subsidy. ICR is the only income-driven plan for which parent loans are eligible, and you’ll need to consolidate them first. Whether you hold a parent PLUS loan or FFEL parent loan, you’ll need to apply for Direct Loan consolidation to make it eligible for ICR.
Pros and Cons
Pros
Cons
Parent loans are eligible if you consolidate them first
Highest monthly payment of income-driven plans at 20%
Offers loan forgiveness after 25 years
No interest subsidy
Qualifying plan for PSLF
Requires loan consolidation before parent loans are eligible
8. Income-Sensitive Repayment
The Income-Sensitive Repayment plan is available for FFEL loans, which were issued to students before the program ended in 2010.
How It Works
If you hold loans from the Federal Family Education Loan (FFEL) Program, you might consider income-sensitive repayment. This plan caps your payments at 4% to 25% of your gross income, depending on your lender’s unique formula. It’s only available for five years, after which you’ll need to apply for a different plan.
Pros and Cons
Pros
Cons
Adjusts your payments in accordance with your income
Payment formula varies by lender
Available for FFEL loans
Only available for five years
Choosing the Best Option for You
With so many different student loan repayment options to consider, it can be tough to decide which one is best for you. Here are a few tips that can help you decide. First, think about what monthly payment you can afford. If your student loan payments are a struggle to make, consider an income-driven plan. You can choose a specific plan or simply request from your loan servicer whichever one would give you the lowest monthly payment. If you can afford your payments, however, consider staying on the standard plan so that your debt is paid off in 10 years. You might even make extra payments to pay your loan ahead of schedule and save more on interest. If you’re working toward PSLF, get your loans on an income-driven plan as soon as possible. Those are the only plans that qualify for PSLF. Federal Student Aid offers a Loan Simulator tool that can help you compare your loans on different repayment plans. And if your situation changes, you can always apply for an alternative plan that better meets your needs. Note: President Biden has announced the creation of a SAVE program that could provide the most affordable terms yet for income-based repayment.
The Takeaway
The government offers a variety of repayment plans for paying back your student loans, but these aren’t your only options. For example, you could consider refinancing your student loans with a new lender. Refinancing could result in different interest rates and repayment terms. However, one major disadvantage of refinancing federal loans is that doing so turns them private, which makes them ineligible for federal programs and protections like forgiveness and the current pause on payments. If you want to retain access to these programs, it wouldn’t make sense to refinance your federal loans. However, if you don’t need federal programs or if you have high-interest private student loans, refinancing could be a strategic move. Depending on your credit, you could qualify for better rates on your student loans than you have now.
3 Student Loan Tips
Refinancing your student loan can lower your monthly payments and help you adjust your loan term. Compare student loan refinancing rates to find a loan that works for you.
Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for federal student loan forgiveness.
Frequently Asked Questions
What are the different kinds of student loan repayment plans?
What is the most popular way to pay off student loans?
Are student loans automatically forgiven after a certain amount of time?
Photo credit: iStock/PeopleImages
LCSL0822003
About the Author
Rebecca Safier
Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
