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Your Guide to Choosing a Student Loan Repayment Plan

Choosing a Student Loan Repayment Plan
Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Updated June 24, 2022
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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.
Federal student loan borrowers can choose a federal student loan repayment plan at any time. The U.S. Department of Education offers a variety of student loan repayment options, and you can choose the best option for you.Most student loan debt is federal, but the best repayment plan for some borrowers might involve a private lender’s student loan refinancing plan. Refinancing federal student loans can have some advantages, but refinancing these loans would also remove one’s access to income-driven repayment plans offered by the federal government.

Different Student Loan Repayment Plans

Below, we highlight some of the federal student loan repayment plans offered by the U.S. Department of Education:

Standard Repayment

The Standard Repayment Plan is the basic repayment plan for federal student loan borrowers. Borrowers are generally responsible for a monthly payment of at least $50 or more under this plan. The repayment period is generally up to 10 years but between 10 and 30 years for Direct Consolidation Loans and Federal Family Education Loan (FFEL) Consolidation Loans.

Graduated Repayment

Federal student loan borrowers may be eligible for the Graduated Repayment Plan. Monthly payments under this plan start out low and increase every two years. The repayment period is generally up to 10 years but between 10 and 30 years for Direct Consolidation Loans and FFEL Consolidation Loans.

Extended Repayment

Borrowers with federal student loans may be eligible for the Extended Repayment Plan. This plan allows you to repay your federal student loans over an extended period up to 25 years. Monthly payments under this plan could be a fixed or graduated amount.

Income-Driven Repayment

The U.S. Department of Education offers the following four income-driven repayment plans to help borrowers pay down their federal student loan debt:
  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Pay As You Earn Repayment Plan (PAYE)
  • Income-Based Repayment Plan (IBR)
Private student loans are not eligible for federal income-driven repayment plans. All four income-driven repayment plans usually give borrowers a lower monthly payment compared with the Standard Repayment Plan.An income-driven repayment plan can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. The repayment periods are 25 years for ICR, 20 years or 25 years for REPAYE, 20 years for PAYE, and 20 years or 25 years for IBR.

Choosing a Student Loan Repayment Plan

Here are some steps you may follow when choosing a student loan repayment plan:

1. Reviewing Your Finances

The first step you can take when choosing a student loan repayment plan is reviewing your finances. This may include reviewing your income, cost-of-living expenses, debt obligations, and personal savings. You can assess your personal financial outlook to determine how much you can afford to pay toward student loan debt obligations each month. Choosing a student loan repayment plan with the highest monthly payment may be your fastest path to paying off the loans in full. You can also minimize your interest charges by paying off your student loans sooner rather than later.Choosing a student loan repayment plan with the lowest monthly payment may be your longest route to pay off the loans in full. Choosing a longer repayment term can also expose you to more interest charges over the life of your loan.

2. Creating a Budget

After reviewing your finances, you can work toward creating a budget that works best for you. Once you determine how much you can afford to pay each month toward student loan debt, your budget can reflect how much money you are willing to spend on repaying these obligations per month.As mentioned above, choosing a student loan repayment plan with the highest monthly payment may be your fastest path to paying off the loans in full. You can also minimize your interest charges by paying off your student loans sooner rather than later. Borrowers can make more than the minimum payment when paying off student loans.What you’re willing to budget toward student loan debt payments can reflect what’s best for you. Making higher monthly payments may not work for you if it means sacrificing your quality of life. Budgeting more of your income toward student loan repayments might make no sense for you if it means budgeting less toward essential goods and services.

3. Choosing the Best Option for You

After reviewing your finances and creating a budget, you can choose the student loan repayment plan that works best for you. The federal government has a loan simulator that can help you choose a repayment option that best meets your needs and goals.Student loan repayment plans offered by the U.S. Department of Education may include specific eligibility criteria. All federal student loan borrowers are eligible for the Standard Repayment Plan, which usually features higher monthly payments than other repayment plans.You may qualify for several repayment plans, but your individual circumstances would determine which plan can provide you with the lowest monthly payment. The income-driven plans in some cases might not provide you with the lowest monthly payment.

Changing Your Repayment Plan by Refinancing Your Student Loans

Refinancing federal student loans can allow borrowers to replace their existing federal loans with the terms and conditions of a private loan agreement. To refinance your student loans, you may submit a student loan refinancing application with a private lender and see if you qualify.Private lenders can set their own underwriting standards, but some may require applicants to have steady income and good credit. For subprime borrowers, it might be difficult to refinance student loans with bad credit.One of the advantages of refinancing student loans is it may provide you with a lower interest rate. One of the big disadvantages of refinancing student loans with a private lender, however, is you’ll be forfeiting federal benefits. Refinancing federal student loans will remove your access to income-driven repayment plans offered by the federal government.The difference between private and federal loans is that federal student loans are provided exclusively by the U.S. Department of Education. Banks, credit unions, online lenders, and select state-based or state-affiliated organizations may offer private student loans. You can refinance federal student loans with private student loans. This means federal student loan borrowers may consider switching from a federal repayment plan to a private lender’s student loan refinancing payment plan.The federal government in March 2020 suspended student loan payments in response to the COVID-19 pandemic. After a number of extensions, the moratorium on student loan payments is scheduled to be lifted on August 31, 2022. Some borrowers may never finish repaying a student loan during their lifetime. What happens to student loans when you die is the debt might be discharged, although some lenders may demand repayment from your estate.Various elected officials have talked about broad student loan forgiveness of federal student loans. Several of the federal government’s student loan repayment plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period.Meanwhile, people who served in the U.S. armed forces may qualify for military student loan forgiveness.Some may ask, how long does it take to pay off student loans? It can take borrowers between 10 to 30 years to pay off federal student loans and five to 25 years to pay off private student loans.The average interest rate on student loans is 5.8% among all existing borrowers as of 2022, according to the Education Data Initiative.

Refinance Student Loans With Lantern:

If you want to refinance student loans, Lantern by SoFi can help you compare student loan refinance options. Refinancing might be right for you if you can lock in a lower interest rate. Explore your options today and consider applying with a lender of your choice.
Photo credit: iStock/Vanessa Nunes
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.LCSL0422016

Frequently Asked Questions

What is the best repayment option for student loans?
How do I choose a loan repayment plan for myself?
What are the most common student loan repayment plans?

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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