Learn About Federal Student Loan Repayment Plans

Better information leads to better student loan payment decisions

High school student considering student loan options.
•••

Emma Innocenti / Getty Images

After college, most graduates have about six months to get their finances together before they start making student loan payments. But instead of just settling for the default repayment plan, understand your repayment options to choose the one that best suits your needs.

Federal student loans, in particular, have a number of repayment and forgiveness options that can make it easier to deal with debt.

Standard Repayment Plan

This is the default repayment plan and will go into effect if you make no alternate choice. Payments are set at a fixed amount, and the loan is paid off over a 10-year period (or up to 30 years for consolidation loans).

Who Is This Best For?

If you can afford monthly payments on the Standard Repayment Plan, this is probably your best option. You know how much you will pay for how long, and the total amount of you repay is usually less than it would be on other repayment plans.

Pros
  • Shortest repayment period

  • Lower total loan costs

  • Available for all types of federal student loans

Cons
  • Monthly payments are not based on income or earning ability, and may be higher than on other plans

  • Borrowers with low income relative to student debt may find Standard Repayment Plan payments unaffordable

  • Not ideal for borrowers pursuing Public Service Loan Forgiveness (PSLF)

Graduated Repayment Plan

Initial payments start low and gradually increase, usually every two years. Similar to the Standard Repayment Plan, you will pay this amount for up to 10 years or up to 30 years for consolidation loans.

Who Is This Best For?

If you expect your income to increase over time, the Graduated Repayment Plan might be a good option.

Pros
  • Payments begin low and increase over time

  • Student loans are paid off in as little as 10 years

  • Available for most federal student loans

Cons
  • Total loan costs may be higher than on a Standard Repayment Plan

  • Higher loan balances on consolidation loans can result in longer repayment periods

  • Payments increase on a schedule and may become unaffordable if your income doesn’t also increase

Consolidation Loans

Loan consolidation is the process of combining several loans into one debt, with a single payment. Consolidating your federal loans gives you the option to change repayment plans. 

Consolidation can also be used to convert student loans from out-of-date federal programs into a Direct Consolidation Loan that may be eligible for more repayment plans and options.

Who Is This Best For?

Loan consolidation may be smart if you want to combine and simplify federal student loans, or your current loans are ineligible for certain repayment plans and would be eligible after consolidation. 

Pros
  • May lower payments and give you up to 30 years to repay student loans

  • Converts variable-rate loans to a fixed rate

  • Consolidation can make income-driven repayment plan options accessible

Cons
  • Resets the repayment term, which can increase the time it takes to repay loans and the amount it costs to repay them

  • Borrowers lose credit for previous payments made toward forgiveness through income-driven repayment plans or Public Service Loan Forgiveness (PSLF)

Extended Repayment Plan

With this plan, payments can be fixed or graduated, and the repayment term can be extended up to 25 years. Borrowers must have $30,000 in student loan debt to qualify.

Who Is This Best For?

If you want lower payments that are fixed, need a longer timeline to repay debt, and have more than $30,000 in eligible student loans, an Extended Repayment Plan might be a good choice.

Pros
  • Payments may be lower than on a Standard or Graduated Repayment Plan

  • Available for all types of federal student loans

Cons
  • Total amount repaid will be higher, relative to a Standard Repayment Plan, because you’re making payments for a longer period of time

  • Must have a balance of $30,000 or more to be eligible

Pay As You Earn Repayment Plan (PAYE)

PAYE sets monthly payments at 10% of your discretionary income, capped at what your payments would be on a Standard Repayment Plan. Lower payments will result in higher interest charges and longer repayment, which could increase your total loan costs. However, remaining student loan balances are forgiven after 20 years of payments on PAYE. 

The Pay As You Earn Repayment Plan (PAYE) is an income-driven repayment (IDR) plan, which means payments are based on your income and family size—not how much you owe. For borrowers whose incomes are low relative to their student loan balances, PAYE and other IDRs can keep monthly costs manageable. 

Who Is This Best For?

If you have low income and/or high student loan debt and are seeking affordable payment, this play may be a good choice. You must meet a partial hardship requirement—satisfied if the monthly payments as set by PAYE are less than what you would pay on a 10-year Standard Repayment Plan.

PAYE is only available to newer borrowers, generally those who took out their first Direct or FFEL Program Loan after Oct. 1, 2007. 

Pros
  • Payments are 10% of discretionary income and capped to never exceed what the borrower would pay on a Standard Repayment Plan

  • Remaining balances are forgiven after 20 years of payment

  • Keeps payments (and overall loan costs) lower for borrowers pursuing Public Service Loan Forgiveness (PSLF)

  • Married borrowers who file taxes separately can set payments based on their individual income

Cons
  • Direct PLUS Loans made to parents aren’t eligible; FFEL and Perkins Loans will need to be consolidated to be eligible

  • Only newer borrowers and those with partial hardship are eligible

  • Smaller payments and longer repayment can increase total loan costs, relative to a Standard Repayment Plan

  • You might owe income taxes on any loan amounts that are forgiven

Revised Pay As You Earn Repayment Plan (REPAYE)

On a Revised Pay As You Earn Plan (REPAYE), monthly payments are limited to 10% of your discretionary income. This amount is recalculated each year, based on your current income and family size. 

If payment amounts are not enough to pay accruing interest, unpaid interest can eventually accumulate and add to what you already owe. REPAYE offers a partial interest subsidy to offset these payments that is more generous than the interest subsidy on either the PAYE or Income-Based Repayment (IBR) Plans.

Who Is This Best For?

REPAYE is best if you need lower payments and expect to have unpaid interest on an IDR plan that would benefit from the interest discount. It can also be an alternative to PAYE if you don’t meet the financial hardship or new borrower requirements.

Pros
  • Payments are limited to 10% of discretionary income

  • A more generous interest subsidy than other IDR plans

  • No partial financial hardship requirement

  • Keeps payments (and overall loan costs) lower for borrowers pursuing Public Service Loan Forgiveness (PSLF)

  • Remaining balances are forgiven after 20 to 25 years

Cons
  • Direct PLUS Loans made to parents aren’t eligible; FFEL and Perkins Loans will need to be consolidated to be eligible

  • Payments are not capped; they will increase proportionately with income, with no limits

  • Smaller payments and longer repayment can increase total loan costs, relative to a Standard Repayment Plan

  • You might owe income taxes on any loan amounts that are forgiven

Income-Based Repayment Plan (IBR)

Payments are set to 10% of discretionary income for new borrowers (on or after July 1, 2014), and 15% for those who aren’t new borrowers—payments won’t exceed what you would pay on the Standard Repayment Plan. If you are married, your spouse's income or loan debt will be considered only if you file a joint tax return.

Who Is This Best For?

Income-Based Repayment may be best if you’re interested in an IDR plan like PAYE or REPAYE. Many FFEL Loans are eligible for IBR, without the need for consolidation.

Pros
  • Payments are limited to 10% or 15% of discretionary income, and capped to never exceed what the borrower would pay on a Standard Repayment Plan

  • Available for many FFEL Loans, with no consolidation required

  • Married borrowers who file taxes separately can set payments based on their individual income

  • Forgiveness after 20 or 25 years

Cons
  • Direct PLUS Loans made to parents are ineligible; Perkins Loans must be consolidated to be eligible

  • Smaller payments and longer repayment can increase total loan costs, relative to a Standard Repayment Plan

  • Borrowers who had federal student loans before July 2014 will have higher payments, and must make 25 years of payments to get forgiveness

  • You might owe income taxes on any loan amounts that are forgiven

Income-Contingent Repayment Plan (ICR)

This is the only income-driven repayment plan open to borrowers with Parent PLUS Loans. On this plan, your monthly payment is the lesser of 20% of your discretionary income or the amount you would pay on a fixed 12-year repayment plan, adjusted according to your income. The Income-Contingent Repayment Plan (ICR) has a repayment length of 25 years, after which the remaining balance is forgiven.

Who Is This Best For?

ICR is the best option if you have Parent PLUS Loans and want to enroll in an Income-Driven Repayment Plan. Parent PLUS Loans must first be consolidated into a Direct Consolidation Loan, which can then be repaid under an ICR plan.

Pros
  • Available for PLUS Loans made to parents, after these loans are consolidated

  • Payments are limited to the lesser of 20% of discretionary income or the payment amount on a 12-year repayment term

  • Married borrowers who file taxes separately can set payments based on their individual income

Cons
  • Payments are higher on ICR relative to other income-driven repayment plans

  • Lower payments and longer repayment can increase total loan costs, relative to a Standard Repayment Plan

  • You might owe income taxes on any loan amounts that are forgiven

Income-Sensitive Repayment Plan

The Income-Sensitive Repayment Plan is only offered for FFEL Loans, which originated under the now-defunct Federal Family Education Loans Program. Direct Loans and Stafford Loans are ineligible.

Your monthly payment is based on your annual income, and the repayment term is up to 10 years.

Who Is This Best For?

If you have FFEL Loans and are interested in a repayment plan option other than the ones above, talk to your loan servicer about repayment under an Income-Sensitive Repayment Plan.

The Income-Sensitive Repayment Plan is only an option if you have FFEL Loans.

How to Choose the Right Plan for You

Repayment plans can be changed at any time. But before doing so, use the loan simulator tool from the Federal Student Aid Office to compare your payment amount under the different plans.

Though a lower monthly payment can be attractive, it can also increase total loan costs if the repayment term is longer.

If you’re struggling to make payments, you might benefit from switching to a plan with lower monthly costs—even if it means you’ll pay more over the long term to pay back your loans. Missed payments, late fees, and other mishaps could damage your credit and cost more money than choosing a repayment plan with a longer repayment period.

It is best to talk to your student loan servicer if you have questions or want to apply to change your repayment plan.