Whether you’re thinking about taking out a student loan to help pay for school, or you’re getting close to graduation and trying to figure out how to navigate paying back your student loan, you’ll find it helpful to understand the eight different federal student loan repayment plans.
Federal student loans include direct subsidized or unsubsidized loans, PLUS loans, and Perkins loans. If you took out one of these types of loans to help pay for your education, the U.S. Department of Education requires you to complete exit counseling. Exit counseling is a 20 to 30-minute online course that aims to prepare you for repaying your federal student loan. During this course, you will learn the basics of repaying the loan and have access to repayment calculators and other helpful information to help you begin to create a budget for life after graduation.
There are two general categories for federal student loan repayment plans: traditional plans and income-driven plans. Your situation after graduation and the type of federal student loan you have will impact which type of repayment plan you choose.
Traditional Repayment Plans
Income-driven Repayment Plans
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-based repayment (IBR)
- Income-contingent repayment (ICR)
- Income-sensitive repayment (ISR)
Let’s take a closer look at each of these repayment plans.
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Traditional Repayment Plans
Standard Repayment Plan
If you’re looking for the quickest way to pay off your student loans, this is the plan for you. The standard repayment plan includes fixed monthly payments over the course of 10 years for non-consolidated loans. This is one of the shortest repayment plans offered by the federal government. Because of the short repayment period, your minimum monthly loan payments will be slightly higher when compared to other repayment plans.
You still have the option to select this repayment plan if you have consolidated multiple federal student loans into a single loan. The difference will be the amount of time you will have to pay off the loans. Depending on the total amount of debt you have, your repayment period will be between 10 and 30 years.
The standard repayment plan is ideal for those who are looking to repay their loans as quickly as possible, or for those who have a high-income job and don’t want their monthly payment to be income-driven. Often, if you have a high-income job, by selecting this plan you’ll have a lower monthly payment compared to an income-driven repayment plan.
If you’re planning to seek Public Service Loan Forgiveness (PSLF), this is not the plan for you. You often will need to work in the public service sector for 10 or more years before your loans can be forgiven, so we recommend considering an income-driven repayment plan instead.
One of the downsides of this plan is if you experience a drop in your income, your payments will remain the same, which in some cases can cause financial hardship.
Graduated Repayment Plan
Similar to the standard repayment plan, the repayment period for this plan is 10 years for a non-consolidated loan. The difference is, instead of a fixed monthly payment over those 10 years, the graduated repayment plan features lower initial monthly payments that increase every two years.
The graduated repayment plan is ideal for those who enter their career with a lower starting income but are expecting their income to grow throughout the 10 year repayment period.
For those who consolidated their federal student loans, your repayment period will depend on your total amount of debt and can be up to 30 years.
Like the standard repayment plan, this is not an ideal repayment plan for those who are planning to seek PSLF.
Keep in mind that if you select this plan over the standard repayment plan you’ll pay slightly more in interest over time. Since your payments are lower in the beginning of the plan, you’ll accrue more interest on the student loan over time as your payments increase.
Extended Repayment Plan
The extended repayment plan is offered to students with over $30,000 in federal student loans. This repayment plan extends the repayment period for your loan from 10 years to up to 25 years. With the extended monthly repayment schedule, your minimum monthly payments will generally be lower than those in the standard or graduated plans.
A word of caution when selecting this plan: if you’re seeking lower payments over a longer period of time, you’re often better off selecting an income-driven repayment plan since these types of plans provide forgiveness on the remaining balance of your loan after 20 to 25 years. While you will still need to pay taxes on the forgiven amount, you often end up paying less overall when compared to the extended repayment plan.
With the longer repayment period, you’ll pay more in loan interest, and for this loan, there isn’t a forgiveness option.
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Income-driven Repayment Plans
The following repayment plans base your monthly payment on your income and family size. Many of these repayment plan options are only available to those who meet specific requirements, while some are available to anyone with a qualifying federal student loan.
Depending on which plan you choose, your minimum monthly payments will be 10% to 20% of your discretionary income. This number is determined by the government, and the repayment period for these plans ranges from 20 to 25 years. At the end of the repayment period if there is any remaining balance on your loan, it will be forgiven.
Sometimes, depending on your circumstances, you may qualify for a minimum monthly payment of $0. These periods count towards the total repayment term, as well as periods of economic hardship deferment.
For those with lower income and very high student loan balances, these plans can be very beneficial. Keep in mind that because your minimum monthly payments are low for these plans, interest on the loan will accrue much faster since your payments will not cover the interest on the loan as the balance grows.
As mentioned above, if you’re seeking PSLF, it’s highly recommended that you pick one of these repayment plans for your loans.
Revised Pay As You Earn (REPAYE)
Your monthly payment for your loans under REPAYE is set at 10% of your discretionary monthly income. For this program, your discretionary income is the difference between your annual income and 150% of the poverty guideline for your family size and the state where you live.
How to calculate your discretionary income
To calculate your discretionary income you’ll need to determine the poverty guideline for your family size and the state you live in using the U.S. Department of Health & Human Services poverty guidelines chart. Keep in mind this chart is updated annually. After determining the poverty guideline for you, the rest is simple math.
For example, say in the year 2021 you live in Colorado, your family size is one, and you make $30,000 annually.
- The poverty guideline for this scenario is $12,880.
- $12,880 multiplied by 150% equals $19,140.
- $30,000 minus $19,140 equals $10,860.
- Divide $10,860 by 12 for your monthly discretionary income, $905.
- 10% of $905 is $90.50, which means your minimum monthly payment for your student loan would be $90.50.
When you select this plan it is very important to update your family size and income annually. If you don’t you can be removed from the plan which could make your minimum monthly payment dramatically increase.
Depending on your income and family size your minimum monthly payment under this plan could be higher than what you’d need to pay under one of the traditional repayment plans. Take the time to compare each plan to see what makes the most sense for you.
If all of your student loan was used towards your undergraduate studies your repayment period will be 20 years for this plan. If any of your loan was used towards your graduate studies your repayment period will be 25 years.
Pay As You Earn (PAYE)
Like the REPAYE plan, this plan sets your monthly payment at 10% of your monthly discretionary income (see above for how to calculate this number). Unlike the REPAYE plan, this plan caps your monthly payment at the standard repayment plan level, which means you’ll never pay more than you would on a standard plan.
While this plan is often ideal for those with a high student loan balance, you must meet specific qualifications to qualify for this plan: you must have received your first federal student loan on or after October 1, 2007, and then received an additional student loan on or after October 1, 2011.
Income-based repayment (IBR)
The income-based repayment plan largely depends on when you first borrowed federal student loan money:
- If you first borrowed on or after July 1, 2014 your minimum monthly payment will be 10% of your discretionary income over a 20 year repayment period
- If you first borrowed before July 1, 2014 your minimum monthly payment will be 15% of your discretionary income over a 25 year repayment period
This plan can be ideal for new federal student loan borrowers with a high balance who are looking for lower monthly payments. If you don’t qualify as a new borrower, your minimum monthly payments will be set to 15% of your discretionary income. This means you will pay more per month than you would with the PAYE plan, but the total amount of interest you’ll pay may be lower.
See the REPAYE section for directions on how to calculate your discretionary income.
Income-contingent repayment (ICR)
This plan sets your minimum monthly payment to 20% of your discretionary income or the amount you would pay under a standard repayment plan with a 12-year repayment term. However, with this plan you will repay over a 25-year repayment term.
Take note! The ICR plan uses a different definition of discretionary income than the other income-driven repayment plans. Your discretionary income is the difference between your actual income and 100% of the poverty guideline for your state and family size.
How to calculate your discretionary income for the ICR plan
To calculate your discretionary income for this plan you’ll need to determine the poverty guideline for your family size and the state you live in using the U.S. Department of Health & Human Services poverty guidelines chart. Keep in mind this chart is updated annually. After determining the poverty guideline for you, the rest is simple math.
For example, say in the year 2021 you live in Colorado, your family size is one, and you make $30,000 annually.
- The poverty guideline for this scenario is $12,880.
- Your actual income is $30,000.
- $30,000 minus $12,880 equals $17,120.
- Divide $17,120 by 12 for your monthly discretionary income, $1,426.67
- 20% of $1426.66 is $285.34, which means your minimum monthly payment for your student loan would be $285.34.
This plan is typically good for those who are looking for a lower monthly payment and a longer repayment period than what they would get under the standard repayment plans. This is also the only income-driven repayment plan option available to parents of PLUS loan borrowers — they must consolidate their PLUS loans into a direct loan to qualify.
Income-sensitive repayment (ISR)
This is the only income-driven repayment plan that is available for loans from the Federal Family Education Loan (FFEL) program. If you’ve never heard of the FFEL program it’s probably because it was discontinued in 2010.
Payments for this plan are determined by your lender and based on your annual income. Your minimum monthly payments under this plan may change every year and are typically between 4% and 25% of your gross income. The repayment period for this plan is 10 years.
Keep in mind that you can also only qualify for this repayment option if your monthly payments exceed 20% of your income.
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Other Helpful Resources
If you need more help to figure out what repayment plan is best for you, begin with determining which repayment plans you qualify for. The U.S. Department of Education’s website lists all of the eligibility requirements for each of the repayment plans.
Another helpful resource provided by the U.S. Department of Education is their student loan repayment simulator. By answering a few personal information questions — such as if you’re married and have dependents — and entering your student loan information, you’ll be able to quickly see which plans you qualify for and receive an estimated monthly payment.
This blog is not intended to provide any tax, legal, financial planning, insurance, accounting, investment, or any other kind of professional advice or services. To make sure that any information or suggestions in this blog fit your particular circumstances, you should consult with an appropriate tax or legal professional before taking action based on any suggestions or information that we provide.