Your Guide to Choosing a Student Loan Repayment Plan

Q: What is the best repayment option for student loans?

The best repayment option for student loans is the one that works best for you. Federal student loan borrowers may be eligible for several loan repayment plans. The best student loan repayment plan for you may depend on your personal circumstances. Student loan borrowers may also explore the possibility of refinancing their existing student loans with a private lender. Refinancing may lower your interest rate. (Refinancing for a longer term may increase your total interest costs.)

Q: How do I choose a loan repayment plan for myself?

Federal student loan borrowers may select a federal repayment plan or automatically be assigned to one. You can choose a different federal repayment plan by contacting your federal loan servicer and requesting a change to an eligible repayment plan of your choice. You can change your repayment plan at any time. Any student loan borrower could also apply for student loan refinancing with a private lender. Refinancing federal student loans would give you a brand new repayment plan with a private lender. It would also remove your access to federal income-driven repayment plans.

Q: What are the most common student loan repayment plans?

The most common student loan repayment plans are the ones offered by the U.S. Department of Education. That’s because the vast majority of student debt is federal. The private education loan market represents less than 10% of outstanding student debt, according to a 2023 research paper published by the Federal Reserve. Among the federal government’s most common student loan repayment plans include the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, and income-driven repayment plans.

Sulaiman Abdur-RahmanUpdated August 4, 2023

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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.Under a new rule, interest capitalization will no longer occur when a federal student loan borrower first enters repayment or leaves a forbearance. After a three-year payment pause, the Covid-19 forbearance is set to end on Aug. 30, 2023. As a result, interest accrual on federal student loans will resume on Sept. 1, and payments will be due starting in October 2023. Most student debt is federal, but the best loan 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 loan repayment plan. It’s available to anyone who’s borrowed a federal student loan under the Direct Loan or Federal Family Education Loan (FFEL) programs. Your fixed monthly payment under this plan would be at least $50. The repayment period is generally up to 10 years but between 10 and 30 years for borrowers with federal 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 borrowers with federal 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 (IDR) plans to help borrowers pay down their federal student loan debt:

Saving on a Valuable Education (SAVE) Plan, which replaces the Revised Pay As You Earn (REPAYE) Plan
Pay As You Earn (PAYE)
Income-Contingent Repayment (ICR)
Income-Based Repayment (IBR)

Private student loans are not eligible for any federal repayment options, including IDR plans. Depending on your income and family size, all four IDR plans may offer a lower monthly payment compared with the Standard Repayment Plan.All IDR plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Forgiveness may come after 20 or 25 years under any of the IDR plans, but forgiveness may come earlier for some SAVE Plan enrollees.Borrowers with original principal balances of $12,000 or less may be eligible for forgiveness of any remaining balance after making 10 years of payments under the SAVE Plan, according to the Federal Student Aid Office.

Choosing a Student Loan Repayment Plan

You can take the following steps 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 balances each month. Your annual income may determine whether an IDR plan is right for you. Monthly payments under the SAVE Plan will be 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average for borrowers who have both.You can minimize your interest charges by paying off your student loans sooner rather than later. Choosing a longer repayment term may 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 on student loans, you can implement a budget plan for paying down student debt.As mentioned above, you can 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 debt payments can reflect what’s best for you. Making extra payments may not work for you if it means sacrificing your quality of life.

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. You may qualify for several repayment plans, but your individual circumstances would determine which plan can provide you with the lowest monthly payment.The 10-year Standard Repayment Plan may not be right for you if you’re eligible for Public Service Loan Forgiveness (PSLF). The PSLF program can forgive the remaining balance on your federal student loans after you have made 120 qualifying monthly repayments as a public employee.Recommended: How Long Does It Take To Pay Off Student Loans?

Changing Your Repayment Plan by Refinancing Your Student Loans

You may refinance federal and private student loans with a private lender. Student loan refinancing is paying off existing student loans with a private education loan. Refinancing student loans may lower your interest rate. (Refinancing for a longer term may increase your total interest costs.)You’ll forfeit federal benefits if you refinance federal student loans with a private lender. Refinancing federal student loans will remove your access to IDR plans and PSLF.When weighing the pros and cons of student loan refinancing, here are some additional points to consider:

It might be difficult to refinance student loans with bad credit
What happens to student loans when you die is the debt might be discharged, although some lenders may demand repayment from your estate
People who serve in the U.S. armed forces may qualify for military student loan forgiveness
Private student loan borrowers may have fewer options for student loan forgiveness than federal student loan borrowers

The difference between private vs. federal student loans is the U.S. Department of Education provides or guarantees federal student loans, whereas banks, credit unions, online lenders, and state-based organizations may offer private education loans not guaranteed by the government.Recommended: How Does Student Loan Refinancing Work?

Refinance Student Loans With Lantern

If you want to refinance student loans, Lantern by SoFi can help. Just fill out a form and compare your student loan refinance options. Refinancing may be right for you if you can lock in a lower interest rate. (Refinancing for a longer term may increase your total interest costs.)Lantern can help you compare student loan refinance rates and find the best one for you.

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?

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Photo credit: iStock/Vanessa Nunes

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About the Author

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 served 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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