9 Student Loan Repayment Plans and How They Work

If you don’t understand how student loan repayment plans work, it’s OK. Neither did I when I graduated in 2013 with my Masters in Accounting degree and $26,000 of student loan debt.

Currently, our collective student loan debt is at $1.6 trillion spread across 45 million Americans.

I vaguely remember being informed of a 6-month grace period before my student loan repayment would start. I also remember signing a lot of documents and having an exit interview as I wrapped up my final year.

Surely, six months after graduation, I received a bill of $294 and my repayment journey began.

The student loan representative advised that I was on a standard repayment plan. After making payments for a few years, I paid off the $26,000.

I was unaware of other payment options.

It wasn’t until after I had paid off my student loans did I realize that all student loan repayment plans are not equal.

The purpose of this article is to breakdown the student loan repayment plans so that you can decide which one is right for you based on your situation.

Student Loan Repayment Plans & How They Work.

When it’s time to repay your student loans, it’s important to know what student loan repayment plans are available so you can make an informed decision that works for you.

It is important to note that these student loan repayment plans discussed here only apply to federal student loans.

1. Standard Loan Repayment:

The standard loan repayment is the most common of all the plans and the default option for most loan servicers. This repayment plan calculates your payment into a fixed monthly payment for 10 years (120 months).

Taking the standard loan repayment plan could mean that you’re paying a higher amount monthly because you have a shorter-term but you will save time; which means you’re saving money in the long run.

If you don’t select any other loan repayment option, your loan servicer may place you on the standard repayment option by default.

Eligible loans for this plan include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

*If your loan is not mentioned, it means that your loan doesn’t qualify. See the next plan*.

2. Graduated Loan Repayment:

The graduated loan payment spreads out your payment between 10 – 30 years based on your total student loan balance.

Your monthly payment starts off low at first, then increases as your income increases hence the name graduated (get it, got it, good!).

The premise of this loan repayment option is, there’s a likelihood of starting the workforce with a low income as a fresh graduate and the expectation that your income will increase as you progress into mid or senior-level experience in your career.

Under this repayment plan, your payment will increase every two years.

Eligible loans for this plan include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

*If your loan is not mentioned, it means that your loan doesn’t qualify. See the next plan*.

3. The Extended Repayment Plan:

Do you need to repay your student loans over an extended period of time? Then the extended repayment plan may be right for you.

Under this repayment plan, the borrower will have a fixed monthly payment for 25 years and must have a student loan balance of more than $30,000 to qualify.

Eligible loans for this plan include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

*If your loan is not mentioned, it means that your loan doesn’t qualify. See the next plan*.

4. The Income Sensitive Repayment Plan:

This is a special repayment option with strong eligibility for qualification. The income-sensitive repayment plan is reserved for low-income borrowers who have the Federal Family Education Loan (FFEL).

Payments under this plan may increase over time. However, the loan term is for a maximum of 10 years.

Eligible loans for this plan include:

  • FFEL PLUS Loans
  • FFEL Consolidation Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

*If your loan is not mentioned, it means that your loan doesn’t qualify. See the next plan*.

5. Income-Driven Repayment (IDR):

The income-driven repayment plan allows you to pay back your student loans at an affordable amount based on your adjusted gross income and family size.
An income-driven repayment (IDR) may be suitable for you if you’re on the student loan forgiveness track.

However, this is the most complex loan repayment option because there are four (4) types each with different eligibility, terms, and income allocated for repayment:

  • Income-Based Repayment Plan (IBR Plan)
  • Revised Pay As You Earn Repayment Plan (REPAYE Plan)
  • Income-Contingent Repayment Plan (ICR Plan)
  • Pay as you earn Repayment Plan (PAYE Plan):
We will go through this repayment plan step by step because of the unique requirements for eligibility on each:

5a. Income-Based Repayment Plan (IBR Plan): 

Generally, your payment will be based on between 10% or 15% of your discretionary income.

This plan requires you to have “partial financial hardship” and you have to make repayments for 20 -25 years to be considered for student loan forgiveness.

Loans that qualify include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents
  • Subsidized Federal Stafford Loans (from the FFEL Program)
  • Unsubsidized Federal Stafford Loans (from the FFEL Program)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Loans that qualify (if consolidated into a direct loan):

  • Federal Perkins Loan

*If your loan is not mentioned or you didn’t consolidate, it means that your loan doesn’t qualify. See the next plan*.

5b. Revised Pay As You Earn Repayment Plan (REPAYE Plan):

Under the REPAYE plan, your monthly student loan payment will be based on 10% of your discretionary income.

The balance can be forgiven after 20 years (undergraduate loan) – 25 years (for graduate school loans) of qualifying payments.

Loans that qualify include:

  • Direct Subsidized Loans.
  • Direct Unsubsidized Loans.
  • Direct PLUS Loans made to graduate or professional students.
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents.

Loans that qualify (if consolidated into a direct loan):

  • Subsidized Federal Stafford Loans (from the FFEL Program)
  • Unsubsidized Federal Stafford Loans (from the FFEL Program)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Perkins Loans

*If your loan is not mentioned or you didn’t consolidate, it means that your loan doesn’t qualify. See the next plan*.

5c. Income-Contingent Repayment Plan (ICR Plan):

Under the ICR plan, your monthly student loan payment will be based on 20% of your discretionary income. Your student loan balance can be forgiven after 25 years of qualifying payments.

Loans that qualify include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents
  • Direct Consolidation Loans that repaid PLUS loans made to parents

Loans that qualify (if consolidated into a direct loan):

  • Direct PLUS Loans made to parents
  • Subsidized Federal Stafford Loans (from the FFEL Program)
  • Unsubsidized Federal Stafford Loans (from the FFEL Program)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL PLUS Loans made to parents
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • FFEL Consolidation Loans that repaid PLUS loans made to parents
  • Federal Perkins Loans

*If your loan is not mentioned or you didn’t consolidate, it means that your loan doesn’t qualify. See the next plan*.

5d. Pay As You Earn Repayment Plan (PAYE Plan):

Under the PAYE plan, your monthly student loan payment will be based on 10% of your discretionary income.

This plan requires that you have a “partial financial hardship” and the balance can be forgiven after 20 years of qualifying payments.

Loans that qualify include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

Loans that qualify (if consolidated into a direct loan):

  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Perkins Loans
  • Subsidized Federal Stafford Loans (from the FFEL Program)
  • Unsubsidized Federal Stafford Loans (from the FFEL Program)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Perkins Loan

*If your loan is not mentioned or you didn’t consolidate, it means that your loan doesn’t qualify.*

Finally:

Most federal student loan borrowers are eligible for at least one income-driven repayment plan. If your income is low enough, your payment could be as low as $0 per month.

However, it is important to know that while your payments are $0 monthly, you’re still racking up interest.

If you plan to seek student loan forgiveness, then you can apply for any of the income-driven repayment plans.

Under the income-driven repayment plan, you have to update your lender about your income and family size by a deadline every year. Failure to do this could result in removal.

You can use our loan amortization schedule calculator to create what-if scenarios and calculate your repayment.

Do you have student loans? Do any of your loans qualify for this plan? Share with me below.

 

About Ogechi

Hello, I'm Ogechi. I'm a financial educator, real estate investor, and founder of OneSavvyDollar. I write to empower you into saving more, paying off debt, increasing your net worth, and building real wealth so you can achieve financial freedom

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