Best Student Loan Repayment Plans

Student loans are expensive and confusing. 

Not only are there different types of student loans you can take out when you go to school, but once you leave school and it’s time to pay those loans back, there are also several repayment plans to choose from.

If you’ve taken out a federal student loan and it’s time to repay, here’s how each repayment plan works, how to qualify, and how to choose the best one for your situation.

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Which Student Loan Repayment Plan Should You Choose?

There are a lot of factors to consider when you’re choosing a federal student loan repayment plan. Here are some things to keep in mind:

• Type of loan: Different federal loans qualify for different repayment plans. Research your loan type and which repayment plans you’re eligible for.
• Income: If you have a high income, you may not qualify for many income-driven repayment plans (IDRs), while a low income can help you qualify for lower payments and student loan forgiveness.
• Family size: For IDRs, your family size affects your monthly payment. The larger your family and number of dependents, the lower your monthly payment might be.
• What you can afford: If you can’t afford a standard repayment plan, you may want to opt for an IDR or another plan that lowers your monthly payments. If you can afford to pay off your loans faster, then a standard plan will save you the most in interest.
• Financial goals: If you want to become debt-free faster, selecting a repayment plan that pays the least in interest is a good idea. But if you want to lower your monthly payments, you may want to select an IDR. 
• Student loan forgiveness: Not all repayment plans qualify for student loan forgiveness. If you plan on taking advantage of forgiveness options, you will need to pick a repayment plan that supports it.

Types of Student Loan Repayment Plans

There are two main categories of repayment plans for federal student loans: fixed payments and income-driven payments.

Fixed payment plans are exactly that: they have fixed amounts that you pay each month. Income-driven repayment plans consider how much money you earn and how big your family is, to set a monthly payment that is affordable for your circumstances.

• Fixed Payment Repayment Plans
  • Standard Repayment Plan
  • Graduated Repayment Plan
  • Extended Repayment Plan
• Income-Driven Repayment Plans
  • Saving on a Valuable Education (SAVE)
  • Pay As You Earn (PAYE)
  • Income-Based Repayment (IBR)
  • Income-Contingent Repayment (ICR)

Fixed Payment Repayment Plans

The main type of repayment plan is a fixed plan that has a set monthly amount, interest rate, and repayment period.

When you graduate, you’ll automatically be put into a standard repayment plan unless you specify otherwise.

Standard Repayment Plan

• Payment rate: Fixed
• Term length: 10 years
• Eligibility: All federal loans

The standard repayment plan for federal student loans is a 10-year plan with equal monthly payments. 

With this plan, the goal is to have your entire student loan paid off in 10 years (or up to 30 years if you have a consolidation loan). 

Example

Let’s say you have $40,000 in student loans, with an interest rate of 5.5%. On a 10-year repayment plan, that means 120 equal monthly payments. 

Your monthly payments would be $434. In total, you would pay $52,093 over 10 years.

As you can see, calculating your loan payment isn’t as simple as just figuring out 5.5% of the total and dividing that by 120. That’s because of amortization, which is the process of paying down both the principal and interest over time.

Amortization can be complicated to calculate on your own, but you can use an online calculator, like the federal government’s loan simulator, to figure out how much you’ll pay on your loan.

Who’s it for?

A standard plan is the best option if you want to pay your loans off quickly. If you have a steady job and can afford the monthly payments, this is one of the quickest repayment plans available.

Who shouldn’t use this plan?

Standard repayment plans are not good if you’re planning to apply for public service loan forgiveness (PSLF) — the minimum 120 payments to qualify for PSLF means the loan would be paid off by the time you’d qualify. 

If you’re looking for lower monthly payments, you should also use a different repayment plan.

Eligibility

Anyone with federal student loans can choose a standard repayment plan.

Graduated Repayment Plan

• Payment rate: Variable
• Term length: 10 years
• Eligibility: All federal loans

The graduated repayment plan for federal student loans is a 10-year plan (or 10 to 30 years for consolidation loans). 

This plan has lower monthly payments to start, which then increase over time — typically every two years. 

With this plan, your entire student loan will be paid off in 10 years. 

Example

Let’s again say you have $40,000 in student loans, with an interest rate of 5.5%. On a 10-year repayment plan, that works out to 120 monthly payments. 

But the difference with a graduated repayment plan is the monthly payments won’t be equal.

So, instead of paying $434 each month, you might start with just $264 each month. Then, after two years it would increase to $373. Two years later, it’s $528 — which means from this point on, you’ll be paying more each month than you would on a standard repayment plan.

Plus, your entire student loan will cost you $71,347 over 10 years, which is a lot more than on a standard repayment plan. This is because you’ll pay more in interest overall.

Who’s it for?

A graduated repayment plan is best if you don’t have a steady income yet and would prefer smaller payments right after graduation. 

As your income grows, your payments will increase as well, making them more manageable to handle.

Who shouldn’t use this plan?

Don’t go for a graduated repayment plan if you’re pursuing PSLF (because the balance will be paid off by the time you qualify). The only exception is a consolidation loan on a longer-term graduated repayment plan. 

Also, the early lower payments will cause you to pay more in interest overall versus on a standard repayment plan.

Eligibility

Anyone with federal student loans can choose a graduated repayment plan.

Extended Repayment Plan

• Payment rate: Fixed or variable
• Term length: 25 years
• Eligibility: At least $30,000 in federal student loans

The extended repayment plan for federal student loans is a 25-year plan with equal or graduated monthly payments. 

With this plan, your entire student loan balance will be paid off in 25 years. 

Example

Let’s use the same example of $40,000 at 5.5% interest. But in this case, you’ll have 300 monthly payments in total to reach 25 years.

If you opt for fixed payments, that works out to $246 each month. This is roughly half of what you’d pay on the standard repayment plan, but because the term is so much longer, you’ll pay a lot more in interest. 

In total, you would spend $73,690 on your student loan over 25 years.

Who’s it for?

An extended repayment plan is best if you prefer lower monthly payments and don’t mind paying more interest over the life of the loan. 

You need at least $30,000 in federal student loans to qualify for this plan.

Who shouldn’t use this plan?

Don’t go for the extended repayment plan if you want to get out of debt quicker, or want to pay less in interest. Since the loan is stretched out over 25 years, you will pay a lot more in interest over the life of the loan. 

This plan currently does not qualify for any student loan forgiveness plans, so if you plan on pursuing forgiveness, don’t opt for an extended repayment plan.

Eligibility

This plan is only available if you have $30,000 or more outstanding in Direct or FFEL Program loans.

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Income-Driven Repayment Plans

There are several income-driven repayments (IDRs) available for federal student loans. These plans base your monthly payment amount on how much you earn and your family size.

The idea behind IDRs is to help graduates who have a “financial hardship.” In plain language, this means the monthly payments under the standard repayment plan are more than you can afford. 

Before choosing one, calculate how much you would owe under the plan versus with a standard repayment plan — if your income is high enough, it may work out better to stick with the standard plan.

With all IDRs, once you’ve made payments for a set number of years (usually 20-25 years), you can get the remaining balance of your loan forgiven. However, you might have to pay income tax on the amount that’s forgiven.

Saving on a Valuable Education (SAVE)

• Payment amount: 10% of your discretionary income (your annual income minus 225% of the poverty line for your state)
• Term length: 20-25 years
• Cap: None
• Eligible loans: Direct Loan (Subsidized or Unsubsidized), Direct PLUS Loan (not parent loan), Direct Consolidation Loan

The Saving on a Valuable Education (SAVE) repayment plan was introduced in 2023 as an improved version of the now-defunct REPAYE plan. 

Instead of basing your monthly payments on your loan amount, this plan sets your payments to 10% of your discretionary income. 

“Discretionary income” is the difference between your annual income and 225% of the poverty line for your state and family size, which is set by the U.S. Department of Health and Human Services.

(Note that all states and D.C. currently have the same poverty lines, but Alaska and Hawaii are higher.)

There’s no maximum cap with the SAVE plan, which means depending on your income, your payment could be higher than what you would pay under a standard repayment plan of 10 years.

You can qualify for loan forgiveness after 20 years of on-time payments (or 25 years for graduate loans).

Example

Let’s say you have a $40,000 loan, live in Michigan, live alone, and make $45,000 a year. Your state’s poverty line for one person is $15,060. 

That means your discretionary income would be:

$45,000 – ($15,060 x 225%) = $45,000 – $33,885 = $11,115

To calculate your monthly payments, take 10% of your discretionary income and divide it by 12:

$11,115 x 10% / 12 months = $1,111.50 / 12 = $92.63 

A monthly payment of $92.63 is a lot less than the $434 you would pay on a 10-year standard repayment plan for a $40,000 loan. 

But because you’re paying so little each month, you’ll end up owing a lot more in interest overall. 

Let’s try another example and say you have a much higher annual income, of $95,000. Your discretionary income would then be:

$95,000 – ($15,060 x 225%) = $95,000 – $33,885 = $61,115

Your monthly payments would then be:

$61,115 x 10% / 12 months = $6,111.50 / 12 = $509.29

This is much higher than what you’d pay on a 10-year standard repayment plan, therefore making SAVE not worth it for you.

Who’s it for?

This plan is for you if you can’t afford standard monthly payments and want to lower your monthly payment as low as possible. 

Who shouldn’t use this plan?

The SAVE plan isn’t good for paying down your student loan as fast as possible. 

Since payments are lowered (some down to $0 per month), interest will accrue and can cost you more in the long run.

Eligibility

You must have a Direct Loan (Subsidized or Unsubsidized), Direct PLUS Loan (not parent loan), or Direct Consolidation Loan to qualify for this plan. 

You don’t need to meet any specific income limit to be eligible for SAVE. 

Pay As You Earn (PAYE)

• Payment amount: 10% of your discretionary income (your annual income minus 150% of the poverty line for your state)
• Term length: 20 years
• Cap: Standard repayment plan monthly payment
• Eligible loans: Direct Loan (Subsidized or Unsubsidized), Direct PLUS Loan (not parent loan), or Direct Consolidation Loan

The Pay As You Earn (PAYE) repayment plan lets you lower your monthly payment to 10% of your discretionary income — but no more than a standard repayment plan monthly payment.

For PAYE, your discretionary income is the difference between your annual income and 150% of the poverty line for your state and family size.

Under this plan, you can qualify for loan forgiveness after 20 years of on-time payments.

Example

Let’s say you have a $40,000 loan, live in Hawaii, live with your partner, and together you make $90,000 a year. Your state’s poverty line for a two-person household is $23,500.

That means your discretionary income would be:

$90,000 – ($23,500 x 150%) = $90,000 – $35,250 = $54,750

Your monthly payments would be:

$54,740 x 10% / 12 months = $5,475 / 12 = $456.25

That’s more than the $434 monthly payment on a 10-year standard repayment plan for a $40,000 loan. But since there’s a cap with this program, you wouldn’t have to pay more than $434 on a loan of that size — so there’s no benefit to this plan for you. 

But let’s say instead your partner is unemployed and you only have half that income for the two of you. Your discretionary income would then be:

$45,000 – ($23,500 x 150%) = $45,000 – $35,250 = $9,750

Your monthly payments would be:

$9,750 x 10% / 12 months = $975 / 12 = $81.25

This would be a much more affordable monthly payment than the standard plan, so you can better manage until you build up a higher income between the two of you.

Who’s it for?

This plan is for you if you need to lower your monthly payments because of a low income.

Who shouldn’t use this plan?

The PAYE plan lowers your monthly payments, but you will accrue interest much faster. This could cost you more over the life of your loan, especially if you don’t end up qualifying for any student loan forgiveness plans. 

If you want to pay off your loans quickly, don’t choose the PAYE plan.

Eligibility

To qualify for PAYE, you need to be a “new borrower.” This means you meet two criteria:

• You have no outstanding balance on a Direct Loan or FFEL Loan on or after October 1, 2007.
• You received money from a Direct Loan on or after October 1, 2011.

You must have a Direct Loan (Subsidized or Unsubsidized), Direct PLUS Loan (not parent loan), or Direct Consolidation Loan for PAYE.

Income-Based Repayment (IBR)

• Payment amount: 10% to 15% of your discretionary income (your annual income minus 150% of the poverty line for your state)
• Term length: 20-25 years
• Cap: Standard repayment plan monthly payment
• Eligible loans: Direct Loan (Subsidized or Unsubsidized), Direct and FFEL PLUS Loan (not parent loan), or FFEL or Direct Consolidation Loan

An IBR lowers your monthly payments based on when you borrowed. 

• For loans borrowed before July 1, 2014, the payment is set at 15% of your discretionary income, and the repayment term is 25 years. 
• For loans borrowed after July 1, 2014, the payment is set at 10% of your discretionary income, and the repayment term is 20 years.

In both cases, your monthly payment is capped to be no more than it would be on a standard repayment plan.

For IBR, your discretionary income is based on the difference between your annual income and 150% of the poverty line for your state and family size. 

Under this plan, you can qualify for loan forgiveness after 20 years of on-time payments if you borrowed after July 1, 2014, or after 25 years if you borrowed before then.

Example

Let’s say you have a $40,000 loan, live in Ohio, make $80,000 a year, and are a single parent with your child living with you. Your state’s poverty line for a two-person household is $20,440.

That means your discretionary income would be:

$80,000 – ($20,440 x 150%) = $80,000 – $30,660 = $49,340

If you borrowed before July 1, 2014, your monthly payments would be:

$49,340  x 15% / 12 months = $7,401 / 12 = $616.75

This is much higher than the $434 you would pay on a 10-year standard repayment plan for a $40,000 loan. But since there is a cap with this plan, you wouldn’t pay more than $434 on that size of loan — so there’s no benefit to this plan for you.

But let’s say instead you’re working a minimum wage job and only earning $21,000 a year. Your discretionary income would then be:

$21,000 – ($20,440 x 150%) = $21,000 – $30,660 = – $9,660

You’re now in the negative, so your payments would be zero until you earn a higher income.

Who’s it for?

IBR plans are best if you want lower monthly payments and have a low enough income to be below the threshold. 

If you don’t earn enough from your job or simply want to pay less per month, IBR plans can help. 

Just be aware that you’ll pay more in interest over the life of the loan than with a standard repayment plan.

Who shouldn’t use this plan?

If you make enough money that your IBR monthly payment would be more than on a standard plan, then it doesn’t make sense to use an IBR plan.

Also, if you want to save on interest or pay your loans off quicker, an IBR plan isn’t for you.

Eligibility

You must have a Direct Loan (Subsidized or Unsubsidized), Direct and FFEL PLUS Loan (not parent loan), or FFEL or Direct Consolidation Loan to qualify for this plan.

Income-Contingent Repayment (ICR)

• Payment amount: Lesser of 20% of your discretionary income or monthly payment based on a 12-year fixed payment plan
• Term length: 25 years
• Cap: None
• Eligibility: Direct Loan (Subsidized or Unsubsidized), Direct PLUS Loan (not parent loan), or Direct Consolidation Loan

The ICR plan offers monthly payments that fluctuate with your income and family size, for a term of 25 years. The payment is the lesser of:

• Your monthly payment based on a plan with a fixed payment over 12 years, or
• 20% of your discretionary income.

For ICR, your discretionary income is 100% of your state’s poverty line.

There are no payment caps on this plan, so make sure to calculate if your payment would be lower on a standard plan or another IDR plan.

With an ICR plan, your loan should be paid off in 25 years. Any balance that’s remaining after 25 years of qualifying payments will be forgiven.

Example

Let’s say you live in California, live alone, and make $45,000 a year. Your state’s poverty line is $15,060. Your loan is $40,000 at 5.50% interest.

With fixed payments over 12 years, you’d pay $380 per month.

Or if you go by discretionary income, you’d calculate:

($45,000 – $15,060) x 20% / 12 months = $499

In this case, the 12 months of fixed payments are cheaper, so that’s what your ICR plan would be based on.

Who’s it for?

The ICR plan is best if you have a low income and want lower monthly payments. 

Since the payment fluctuates based on your income, if your income suddenly drops, this plan can lower your payments during that period. 

Who shouldn’t use this plan?

If you have a high income, the ICR plan doesn’t make sense, especially since there are no payment caps. In some instances, your payment might be higher than a standard repayment plan.

Eligibility

You must have a Direct Loan (Subsidized or Unsubsidized), Direct PLUS Loan (not parent loan), or Direct Consolidation Loan to qualify for this plan.

What About Private Student Loan Repayment Plans?

If you have private student loans, your repayment plan is determined by your lender. 

Some lenders offer multiple repayment terms, but you’ll have to research which plan is best for your situation.

Remember, private student loans don’t offer the same protections or forgiveness options as federal student loans. And most also don’t offer income-driven repayment plans, so you can’t lower your monthly payments unless you refinance.

READ MORE: Federal vs. Private Student Loans: What’s the Difference?

FAQ

Can you switch student loan repayment plans?

Yes, you can change your federal student loan repayment plan at any time by applying for an income-driven repayment plan or requesting a plan change from your loan servicer. 

For private student loans, typically the only way to change your plan is to refinance your loans.

What is the best strategy for student loan repayment?

The best student loan repayment plan is one that you can stick to and that fits your budget. It’s important to review the pros and cons of each before applying for a specific repayment plan. 

And if you’re pursuing student loan forgiveness, make sure to choose a repayment plan that qualifies for loan forgiveness.

TL;DR

There are two main types of repayment plans for federal student loans: a fixed plan or an income-driven plan. Within those categories, there are several different options.

If you don’t apply for any repayment plan, you’ll automatically be put on a standard repayment plan that is the same amount each month for 10 years.

But if you have a low income and can’t meet those monthly payments, you could apply for a graduated plan that starts low and then gets higher, or an income-driven plan that is based on how much money you earn.

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