Student Loan Repayment Plans: Find Your Best Option

While the Standard Repayment Plan is the default for federal student loans, it might not be the best fit for your financial situation. Many borrowers stick with the Standard Repayment Plan because they're either unaware they have other options or are uncertain how to choose the right one. In fact, 42% of borrowers report only ever using the standard plan, and about a third of those borrowers don't realize they can switch plans according to a survey by the Consumer Financial Protection Bureau.

Here's how to compare your options and select the best student loan repayment plan for your situation.

Federal student loan repayment options

You have several federal student loan repayment plans to choose from, each tailored to different financial needs and goals. The table below outlines your choices.

Standard Repayment Plan

If you don't choose a different repayment plan, your loan servicer will place you on the Standard Repayment Plan automatically. This plan features fixed monthly payments over a 10-year term for most federal loans, or up to 30 years for Direct Consolidation Loans.

“Since the plan is designed to minimize interest paid over the life of the loan, borrowers save money compared to extended or income-driven repayment plans that spread out payments over a more extended period,” says Josh Katz, CPA and founder of Universal Tax Professionals.

Graduated Repayment Plan

The Graduated Repayment Plan starts with lower monthly payments that increase every two years. If you have standard loans, your repayment term will be 10 years. However, if you've consolidated your loans, the term can extend to 30 years based on your total loan amount.

This plan could work for you if you need lower payments now but expect your income to grow in the future. As your payments increase, your higher income can help cover the costs without putting additional strain on your budget.

Extended Repayment Plan

The Extended Repayment Plan offers one of the longest repayment periods with a term of up to 25 years. You can choose fixed payments that remain consistent over the term or extended graduated payments that start low and increase every two years. If you select the extended graduated option, your payments will follow a schedule similar to the Graduated Repayment Plan but extend over 25 years.

This plan is available if you owe more than $30,000 in federal student loans. While it can significantly lower your monthly payments, it's important to understand the tradeoff: you'll pay more in total interest over the life of the loan compared to shorter-term options.

Income-driven repayment (IDR) plans

Income-driven repayment (IDR) plans offer borrowers an opportunity to tap into a potentially lower monthly payment and access potential loan forgiveness. These plans adjust your monthly payments based on your family size and income. There are four IDR plans to choose from:

Saving on a Valuable Education (SAVE)

The SAVE Plan offers some of the most borrower-friendly features among IDR options, including an income exemption of 225% of the federal poverty line. This can result in lower payments — or even $0 payments for some borrowers.

If your payment doesn't cover all of the interest you owe for a month, the federal government will cover the remaining unpaid interest that accrued since your last payment. Ultimately, this means your loan balance cannot grow due to snowballing interest charges.

Borrowers with $12,000 or less in loans may qualify for forgiveness after 10 years of payments, while those with higher balances can qualify after as long as 20 years.

The SAVE Plan was put on hold due to legal challenges, and loans under the plan have been placed in forbearance until the case is resolved, likely by the Supreme Court.

Pay As You Earn (PAYE)

The PAYE Plan calculates your monthly payment as 10% of your discretionary income, capped at the amount you'd pay under the 10-year Standard Repayment Plan. To qualify, you must have received a Direct Loan on or after October 1, 2011, and demonstrate a high debt-to-income ratio.

Under PAYE, discretionary income is calculated by subtracting 150% of the poverty guideline for your family size and state from your Adjusted Gross Income (AGI). To stay on the PAYE plan, you must recertify your income and family size annually, which may adjust your monthly payment. After 20 years of payments, any remaining loan balance is forgiven.

Income-Based Repayment (IBR)

The Income-Based Repayment (IBR) Plan adjusts your monthly payments based on your income and when you first borrowed. Payments are capped at the amount you'd pay under the 10-year Standard Repayment Plan.

If you borrowed on or after July 1, 2014, your monthly payment will be 10% of your discretionary income, with forgiveness after 20 years. If you borrowed before that date, your payment will be 15% of your income with forgiveness after 25 years. Any remaining loan balance is forgiven at the end of the repayment period.

Income-Contingent Repayment (ICR)

The Income-Contingent Repayment (ICR) Plan calculates your monthly payments as the lesser of 20% of your discretionary income, or what you'd pay on a fixed 12-year repayment plan, adjusted to your income.

ICR has a 25-year repayment term. After this period, any remaining loan balance is forgiven. While this plan isn't as generous as other income-driven options, it's the only IDR plan available to parent borrowers who consolidate their parent PLUS loans into a Direct Consolidation Loan.

ICR may also work if you need to lower your monthly payments but don't qualify for other IDR plans.

Current student loan refinance rates

Private student loan repayment options

Private student loan repayment options vary by lender, but most offer the following choices while you're enrolled in school:

• Immediate payments: You'll start making full principal and interest payments as soon as your loan is disbursed. This option saves the most on interest over the life of your loan but requires financial readiness to handle payments while in school.
• Deferred payments: You can postpone payments until after you graduate or leave school. However, interest accrues during this time, increasing your total repayment cost.
• Interest-only payments: You'll pay only the interest while in school and during the grace period. This helps keep your balance from growing and lowers the overall cost compared to deferring payments entirely.
• Flat, fixed payments: You'll make small fixed payments (often $25 per month) while in school. This option reduces some accrued interest but doesn't prevent your balance from increasing.

If you can afford it, making immediate or interest-only payments is your best option. It helps you reduce or avoid accrued interest while in school, which can save you thousands of dollars over the life of the loan.

Which plan should I choose?

Choosing the right repayment plan starts with understanding your financial situation.

“It's important for borrowers to start by evaluating their current financial situation, which includes income, expenses, and other debts,” says Christopher Stroup, CFP for Silicon Beach Financial.

Think about your career trajectory. If you expect your income to grow as you progress from an entry-level position, a Graduated Repayment Plan could be a good option.

“Your personal finance goals can also play into your chosen repayment plan, such as paying off the loans quickly, seeking forgiveness, or minimizing monthly payments,” adds Stroup.

For example, “an IDR plan is advantageous for borrowers who have low or unstable income,” says Stroup.

“These repayment plans adjust monthly payments based on the borrower's income and family size, which means that individuals who struggle to make traditional payments due to financial hardship can benefit from this option,” he adds.

On the other hand, if you want to pay off your debt quickly and can handle higher monthly payments, the Standard Repayment Plan might be a better choice.

To narrow down your options, use Federal Student Aid's loan simulator. This tool estimates your monthly payments under different plans and provides tailored recommendations to help you find the best repayment strategy for your needs.