Everything You Need to Know About Student Loan Repayment Plans

Students who are looking for loan repayment plans have various options. Choosing the right one will depend on each person’s goals and financial situation. Some people choose student loan repayment options that offer lower payments, while others offer more predictable payment amounts. We’ll walk through several options to help you choose the best fit for your needs. 

Standard Repayment Plans

Standard student loan repayment plans allow individuals to make the same monthly payments over 10 years. This plan is ideal for those who can afford it because it usually comes with less interest and allows people to pay off the loans more quickly than with other repayment plans. If you’re interested in this repayment option, no action is necessary. Individuals are automatically enrolled in the standard repayment plan upon entering repayment. 

Income-Driven Repayment Plans

Income-driven repayment plans are good options for those looking for lower student loan payments or who qualify for loan forgiveness. There are four income-driven repayment plans offered by the government, including income-based repayment, Pay As You Earn (PAYE), Revised Pay as You Earn (REPAYE), and income-contingent repayment. Those who cannot afford the standard repayment options typically opt for one of these plans. 

In general, income-driven plan payment amounts range between ten and twenty percent of your discretionary income. Those who are unemployed or underemployed (not having enough paid work or not doing work that makes full use of their skills and abilities.) may have payments as low as $0, though this amount can change each year. These types of repayment plans last much longer than standard repayment plans, usually with loan terms that range between 20 and 25 years. Once the loan term ends, the remaining balance is forgiven. One thing to note: you do pay taxes on the forgiven amount. 

Some government and nonprofit employees may be eligible for Public Service Loan Forgiveness (PSLF) federal programs. These programs allow your remaining loan balance to be forgiven on a tax-free basis after 120 qualifying loan payments, which includes payments made under the standard repayment plan or an income-driven repayment plan. 

To enroll in income-driven repayment plans, work with your student loan servicer or apply at studentaid.gov. You may want to select the option that provides the lowest payment amount, but be sure to check your options if you are married and file joint taxes. 

Private Student Loan Repayment Options

Some students take out private loans to pay for college, which do not qualify for income-driven repayment. That said, some lenders offer a temporary reduction in payments. It’s important to contact your lender directly to ask about options that may be available. 

If you have a good credit score (in the high 600s), consider refinancing your private student loans at a lower interest rate. If you don’t have a qualifying credit score, consider having a cosigner who can help you refinance your loan. 

When considering any of these options, it can be helpful to enter your information into the Education Department’s Loan Simulator before updating your student loan repayment plan. This allows you to see what you would owe in payments on each plan. Remember that plans that lower your monthly payments often mean you’ll be paying more total interest.