Are you trying to figure out what student loan repayment plan makes sense for you?
The myriad of options can be confusing, but figuring out the right option is critical to your financial health. There are over 150 different options for your student loans - from Federal loans, private loans, loan forgiveness plans, and more.
It's important to remember the the best student loan repayment plan is the one that you can afford to pay each month, on time, without missing payments. The absolute worst thing you can do is go into default on your student loans.
Below we outline resources and options to help you figure out what makes sense for you.
Resources for Deciding on a Plan
Your Loan Servicer
Loan servicers aren’t known for the best customer service. However, a loan servicer can provide you with information about your current loans including your current repayment plan.
LoanBuddy
LoanBuddy is an online tool that will help you understand your loan repayment options. It has a database of loan repayment options, and it helps you optimize based on your personal circumstances. Unlike lots of tools, it doesn’t automatically push users to refinance loans.
This is a free option that is especially useful for people just getting started with debt repayment, and those who may qualify for Public Service Loan Forgiveness.
Refinancing Marketplaces
Can you easily afford your loan payment on a 10-year repayment plan? If so, refinancing your debt could make sense. Use a marketplace like Credible to find the best interest rate.
Standard Repayment Plan
When you take out Federal student loans, your loan servicer will automatically opt you into the Standard Repayment Plan. Under this plan, you’ll make equal monthly payments for 10 years, and then your loans will be paid off!
The Standard Repayment Plan is the most popular student loan repayment plan, although that is probably because it is a default repayment plan.
In most cases, if your annual salary is more than you owe in student loans, the Standard Repayment Plan makes sense for you. For example, if you earn $47,000 per year, and you owe $33,000 in student loans, in most cases, you can afford to repay the loans.
If you owe more in student loans than you earn each year, you’ll want to avoid this plan (at least for now).
Extended Repayment Option
When you do a direct consolidation of Federal student loans, you can opt into the extended repayment option.
Technically, there are two versions of this program. If your loan repayment started between October 7, 1998 and July 1, 2006, you’ll have 25 years to repay your loans. The payments will be level monthly payments over the 25 years, and you’ll have a minimum of a $50 monthly payment.
For those who started loan repayment after July 1, 2006, the repayment term depends on the loan balance. Repayment terms range from 10 to 30 years.
If you do not plan to apply for Public Service Loan Forgiveness, and you need some extra time to pay back your loans, this plan could make sense. It can be particularly helpful if your total loan balance is between 1 and 1.5 times your annual earnings. For example, if you earn $200,000 per year, and you owe $250,000 in student loans, this could make sense for you.
Loan Balance | Repayment Term |
|---|---|
Less than $7,500 | 10 years |
$7,500 to $9,999 | 12 years |
$10,000 to $19,999 | 15 years |
$20,000 to $39,999 | 20 years |
$40,000 to $59,999 | 25 years |
$60,000+ | 30 years |
Graduated Repayment Option
A graduated repayment plan is a payment program that allows borrowers to pay off loans over a 10-year period. If you’ve taken a Direct Consolidation Loan, the repayment period may last up to 30 years depending on the balance.
Under the Graduated Repayment Plan, payments start low. But your minimum payment increases every two years. Ostensibly, this gives borrowers the ability to adjust their payments as their income rises.
However, this is a plan that seems like the worst of all possible worlds. In many cases, payments under this plan triple over the course of 10 years. Plus, a ton of your payment goes towards servicing interest in the early years, so you’re unlikely to see real progress until your last few years.
In most cases, if you can’t afford your payments right now, an income-driven repayment plan makes the most sense.
Income-Driven Repayment Plans
If you’re pursuing Public Service Loan Forgiveness, you definitely want to be on one of the income-driven repayment plans. However, there are four options, and it isn’t always obvious which one makes the most sense.
This is one time when using LoanBuddy can really pay off. The free version of LoanBuddy will help you figure out the best plan. You can decide whether you need to pay for upgrades to track your PSLF information too.
Revised Pay As You Earn (REPAYE)
Under a REPAYE plan, your payment is capped at 10% of your discretionary income, and your repayment term lasts for 20 years for undergraduate loans. Terms for grad school loans last 25 years.
If you make payments for the full 20 to 25 years, your loans will be “forgiven,” but you have to watch out for a tax bomb. The IRS treats forgiven loans as income the year they are forgiven, so you’ll pay a lot of extra taxes a decade or two down the line.
Any borrower with student loans can go onto the REPAYE plan which makes it a decent plan for very high earners with even higher student loan debts.
Borrowers can use REPAYE in combination with PSLF. When you do this, you’ll make qualified payments for 10 years, then the loan will be forgiven.
Income-Based Repayment (IBR)
If you started borrowing after July 1, 2014, your payment is capped at 10% of your income, and you will make payments for 20 years. If you borrowed before July 1, 2014, your term will be 25 years. After 20 or 25 years, your loans will be forgiven, but you need to watch out for the tax bomb the year the loans are forgiven.
To qualify for IBR, your payment under IBR must be less than the payment under the Standard Repayment Plan.
Borrowers can combine IBR with Public Service Loan Forgiveness. When you do this, you’ll make qualified payments for 10 years, then the loan will be forgiven.
Pay As You Earn (PAYE)
Under PAYE plans, your payment is 10% of your income, and your repayment term is 20 years. If 10% of your income is more than the payment under a standard repayment plan, then your payment is capped. After 20 years of payments, your loan is forgiven, but you have to watch out for the tax bomb.
To qualify for IBR, your payment under IBR must be less than the payment under the Standard Repayment Plan.
You may use PAYE in conjunction with Public Service Loan Forgiveness.
Income-Contingent Repayment (ICR)
Anyone with Direct student loans can opt for an Income-Contingent Repayment Plan.
On an ICR plan, you pay the lesser of either 20% of your discretionary income or what you would pay with a fixed plan over 12 years.
When you use the 20% option, your payments can stretch out up to 25 years. After a maximum of 25 years, your loans will either be paid off or they will be forgiven. The forgiven amount is subject to income taxes.
You may use PAYE in conjunction with Public Service Loan Forgiveness.
Private Loan Repayment Options
Private student loans don't have the same repayment plan options that are offered by the Department of Education. Rather, the loan terms are set by your lender when you take out the loan.
Private loans have terms ranging from 1 year to 20 years, and the interest rate can be fixed or variable. We break down the best private loans here so you can see how yours compares.
Most lenders offer some or all of the following types of plans:
- Immediate Repayment - This is where you start making monthly payments immediately
- Deferment In School - This is where your payment is deferred while you're in school, and typically for 6 months after you graduate
- Set Monthly Payment In School - This is where you have a small, set monthly payment (such as $25) while in school
- Interest Only In School - This is where you pay only your accrued interest each month while in school
If you already have private loans, the typical way to change your repayment plan is to simply refinance your student loan into another student loan with better rates or terms. You can find our guide to Student Loan Refinancing here.
Final Thoughts
Once again, the best student loan repayment plan is the one that you can afford to make every month. If you fail to make your monthly payments, not only will your credit be hurt, but you can see your wages garnished and more. Plus, going into default will see your loan balance automatically rise by about 25% due to accrued interest and collection costs.
So, find the student loan repayment plan that works for you. If you don't know where to start, look at using a service like LoanBuddy to figure it out.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Mary Hickman says
My daughter owes about $250,000 in school loans. She has several loans. One or more is going into default. She has not been able to work for about four years. She was approved for disability retroactively to 2017. She has not been approved indefinitely. Her case will be reviewed in three years. She stopped paying her loans about the same time. She is now considering loan consolidation. Is this something she should consider?
Robert Farrington says
If she is considered totally and permanently disabled, she should look at disability discharge.
If she’s not considered totally and permanently disabled, she just needs to get on an income-driven plan right now. With no income, her monthly payment would legally be $0 per month. That’s much better than deferment or default! See the income-driven repayment plans above. There’s no reason to consolidate.
Alexia Cooper says
What would you recommend for me? I have $61,000 – I was thinking of the extended option, instead of the income-driven repayment plan. I want a plan so I at least pay off the incurred interest. I am graduating with my master’s degree, and going into a paid and tuition-free Ph.D. program this fall.
Robert Farrington says
I rarely recommend the extended option. Why not an income-driven plan? Plus, are you going to be working in public service? You could get loan forgiveness.
Lorianna Moore says
What would recommend me to do I owe 55,000 in student loans and they took my money for income taxes don’t make money what would you recommend for me to do please help me get out of debt
Robert Farrington says
I would recommend you get out of default via rehabilitation to stop the tax refund offsets. Then get on an income-driven payment plan you can afford.
Read this: Get Out Of Student Loan Default.
Tena says
I am totally lost single mom owning over 250,000. I can not pay 900 a month. I pay rent of 2000 and put food on the table. I don’t trust a sole I have been given all wrong information.
Robert Farrington says
What repayment plan are you on currently? How much do you make?
Tiana says
Hi I owe about 100,000 in school loans
35,000 owed to nelnet
22,000 owed to Ed financial
23,000 owed to Great Lakes
25,000 salie mae
I have started making payments to three of them
I might be in default on the nelnet at this point
I didn’t finish and haven’t gotten my degree because the first school I attended closed and I had to change my major and then my Fafsa funds reached their limit so I had to take out the salie mae loan to pay for my last semester I attended and couldn’t go back until I paid that
I am currently working for independent support services – they are a company that employees people to help with people with disabilities would that be a factor that would apply for loan discharge on any programs
Thank you
Tiana D
Robert Farrington says
First, get on an income-driven repayment plan for your Federal loans. Second, if your employer is a non-profit, it could qualify you for loan forgiveness. But if you default on a Federal loan, things get bad fast – no progress towards forgiveness, payments higher than income-driven, 30% balance increase, garnished taxes and wages.
Tiana says
I am past due on the nelnet
Should I bring that up to date and then get on an income driven repayment plan?
Also two of the loans are parent plus loans does that make a difference? And yes my employer is non profit
So that’s a good thing right?
A friend of mine said she is on a repayment plan for ten years and after the ten years they clear up her loans and she is no longer liable to pay for anything her loans are just gone does that sound right ??
Robert Farrington says
Should I bring that up to date and then get on an income-driven repayment plan?
100% yes. Get on an income-driven plan and get back on track.
Also two of the loans are parent plus loans does that make a difference?
Are these loans actually your PLUS loans for your children, or are these loans your parents’ took out and you’re helping with?
If they are your loans for your kids, your options are limited – see this: Options For Parent PLUS Loans.
If they are your parents’ loans, you’re not legally responsible for them and you should find a way to work with them on it.
And yes my employer is non profit, so that’s a good thing right?
It allows you to qualify for Public Service Loan Forgiveness.
A friend of mine said she is on a repayment plan for ten years and after the ten years they clear up her loans and she is no longer liable to pay for anything her loans are just gone does that sound right ??
See above – PSLF.
Kevin says
So much great info here, yet I have a few questions. My wife is looking at taking on $60k in debt for Masters degree in counseling. It’s a 2 year program. It seems that job / field could qualify for some PSLF options (as public health job).
But it sounds like we would need to be in a federal loan (versus private, credit union, HELOC, etc) if I understand that correctly?
Robert Farrington says
Yes, Public Service Loan Forgiveness is only for Federal Direct loans (which, honestly, is what 95% of people should ONLY borrow – if you go beyond the Federal loan limits you usually see a diminishing ROI). Read our full guide to PSLF here: Public Service Loan Forgiveness.