Student Loan Repayment: The Complete Guide To Freedom From Student Debt

student loan repayment

Raise your hand if your student loans make you feel overwhelmed, frustrated, and stuck. (I’ll go ahead and raise mine mentally since it’s kind of hard to type with one hand in the air.)

Given the sheer chunk of money student loans can take out of our monthly income — $351 per month on average for 20-30 year-olds — it’s hard not to feel trapped by student loan debt. But it doesn’t have to be that way.

That’s because many student loans come with more than one repayment plan option. If the one you’re in right now isn’t working for you, you can change it! And if you feel like things aren’t getting better, you can change it back. All you need is to know what options you have with student loan repayment plans.

Read on for a complete list.

A complete list of federal student loan repayment options

If you took out federal student loans rather than private student loans, then you’ve set yourself up nicely to have the best repayment options available. (And if you have a mixture of the two or only private loans, stay tuned — there’s more on those below.)

The list of federal student loan repayment options includes:

  • Plans for when you have no trouble making payments
  • Plans to help out if you are having trouble making ends meet
  • Plans to set you up for student loan forgiveness

student loan repayment

Standard repayment plans

Standard repayment plans are just what they sound like. They’re the plans you’ll choose from when you graduate from college, and they work for all of your federal student loans. Here’s how they vary.

Standard Repayment Plan

The Standard Repayment Plan is a fixed payment plan of up to 10 years (or 30 years if you have FFEL or Direct Consolidation Loans). On this plan, if you stick to the 10-year repayment schedule, you’ll pay the most per month but the least over time on your student loan debt.

That’s because paying the debt off sooner means paying less on interest, getting you as close to that original loan amount as possible.

Graduated Repayment Plan

The graduated repayment plan has the same timeline as the standard repayment plan. It’s up to 10 years unless you have FFEL Consolidation Loans or Direct Consolidation Loans, in which case it’s up to 30 years. The difference between these two plans is how much you’ll pay and when.

A standard repayment plan fixes your monthly payments. With the Graduated Repayment Plan, your payments start small and then gradually increase as the years go on. Typically, the payments increase every two years.

The idea behind this plan is that the payment amounts are smaller when you start out in your career and likely earn less. Then they go up every few years, during which — hopefully — your income will be doing the same.

On this plan, you’ll pay more over time than you would on the standard repayment plan since you’ll carry a larger balance for a longer time, racking up interest as you go.

Extended Repayment Plan

Finally, there’s the extended repayment plan. This plan enables you to have fixed or graduated payments, and it can last up to 25 years.

Although this plan is available for all federal student loans, some have to carry a certain balance to qualify. Specifically, anyone with Direct Loans or FFEL Loans must carry a loan balance of more than $30,000 to be eligible.

And since this plan is an extended version of the Standard Repayment Plan, your monthly payments will be lower — but you’ll also pay more on your loans than you would on the Standard Repayment Plan, due to the interest.

Income-driven repayment plans

Although the last two of the three plans above offer a way to lower your payments below what the standard repayment plan would require, you have even more options to cut your payment in the case of financial hardship. That’s where income-driven repayment plans come in.

The income-driven repayment plan you choose will depend on several things. Most importantly, not all of these plans work with all federal student loans. Read on to see which apply to yours.

Revised Pay As You Earn Repayment Plan (REPAYE)

The REPAYE plan caps your monthly payments at 10 percent of your discretionary income. And if you’re married, that includes your spouse’s income and student loan debt. For this plan, you’ll have to reapply each year and have your payments recalculated.

But watch out: As strange as it might sound, it’s possible that your payments on this plan could be higher than they would be under the 10-year standard repayment plan.

As for who can take advantage of this plan, the qualifying loans are:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to students
  • Direct Consolidation Loans made to parents, as long as they’re not Direct PLUS Loans or FFEL PLUS Loans

If you’re still paying after 20 to 25 years, you’ll be eligible for forgiveness of the rest of your balance. This plan can also be used for Public Service Loan Forgiveness (PSLF), a program that offers student loan forgiveness to qualified employees of the government or a not-for-profit after they make 120 qualifying monthly payments under partner applicable federal repayment plans.

But either way, you might have to pay income taxes on the amount forgiven.

Pay As You Earn Repayment Plan (PAYE)

The regular Pay As You Earn plan is similar to REPAYE. Your payments won’t go above 10 percent of your discretionary income, you have to reapply each year, and your spouse’s income and student loans will impact your payments.

Your payments won’t be more than what they’d be on a 10-year standard repayment plan, but you will pay more over time than you would on that plan. To qualify for PAYE, your debt must be considered to be high in comparison to your income, though what percentage counts as “high” isn’t specified.

And the qualifying loans? They’re the same as REPAYE.

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to students
  • Direct Consolidation Loans made to parents as long as they’re not Direct PLUS Loans or FFEL PLUS Loans

So what’s different? Unlike REPAYE, in which loan forgiveness occurs after 20 to 25 years, any balance you have left on PAYE is forgiven after 20 years. (But, like other plans, you might have to pay income taxes on the forgiven amount.) And to qualify for PAYE, you must have become a borrower on or after October 1, 2007, and have had your loans disbursed on or after October 1, 2011.

Like REPAYE, this plan also works for PSLF.

Income-Based Repayment Plan (IBR)

The IBR plan caps your payments somewhere between 10 to 15 percent of your discretionary income. Like PAYE, your payments won’t be more than the amount on the 10-year standard repayment plan.

Like the others, you must reapply each year if you want to use the plan, but spousal financials will only be considered if you file a joint tax return.

As for the qualifying loans, there are more than the previously mentioned plans:

  • Direct Subsidized loans
  • Direct Unsubsidized loans
  • Student PLUS loans
  • Direct Consolidation loans made to parents, as long as they’re not Direct PLUS loans or FFEL PLUS loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

With IBR, you will pay more over time than you would on the standard repayment plan. But after 20 to 25 years, you can have the rest of your loans forgiven, though you might have to pay taxes on that amount.  This plan also works for people who’ll eventually seek forgiveness through PSLF.

Income-Contingent Repayment Plan (ICR)

The Income-Contingent Repayment Plan isn’t as straightforward as the other options regarding what you might pay each month. For this plan, your payments will either be capped at 20 percent of your discretionary income or at what you’d pay per month if you had a fixed payment plan for 12 years, but with that payment adjusted based on your income. The lesser of those two options will be your monthly payment.

Like all of the income-driven repayment plans, you have to reapply every year, and the payments will be adjusted each time. Unlike the others, your spouse’s student loans and income only factor in if you file a joint tax return or have joint Direct Loans.

Like REPAYE, you could end up paying more per month than you would on a 10-year standard repayment plan. And if your parents want to utilize this plan for loans they took out for you, they can do so if they consolidate their Parent PLUS loans to a Direct Consolidation Loan.

Here are all of the loans that qualify:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Student Direct PLUS Loans
  • Direct Consolidation Loans

Your loans on this plan can be forgiven after 25 years and, yes, you might have to pay income tax on your forgiven amount. This plan works with PSLF.

Income-Sensitive Repayment Plan

The Income-Sensitive Repayment Plan is much more simple than the rest. Your payments are based on annual income, but the lender decides the formula used to determine the amount.

And these are the loans that qualify:

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

You’ll pay more over time than you would on the 10-year standard repayment plan, and the plan can go up to 15 years. It doesn’t work with PSLF, however.

Pausing your student loan repayment

Let’s say you don’t want to use an income-driven repayment plan, but you’re having trouble making your student loan payments. In that case, you have two more options available to you — but they do have an important distinction regarding interest.

Deferment

Deferment enables you to suspend or reduce your monthly payments temporarily. Based on the type of federal loans you have, you might not have to pay interest during that time.

These are the loans for which interest generally won’t accrue during deferment:

  • Direct Subsidized Loans
  • Subsidized Federal Stafford Loans
  • Federal Perkins Loans
  • Any subsidized amount of your Direct Consolidation Loans
  • Any subsidized amount of your FFEL Consolidation Loans

All the rest, unfortunately, do require interest payments during the deferment period. You can either pay the interest each month during your deferment or wait, in which case it will be added to the balance of your loan at the end of deferment.

Here’s a list of times when you could be eligible for a deferment:

  • In-school deferment, including six months after you leave school
  • Parent PLUS Borrower Deferment while you’re in school at least half-time, and for six months after that
  • Graduate Fellowship Deferment
  • Rehabilitation Training Program Deferment for the disabled
  • Unemployment Deferment for as long as three years
  • Economic Hardship Deferment for as long as three years and including time served in the Peace Corps (though that’s not a requirement)
  • Military Service and Post-Active Duty Student Deferment

The federal government’s student aid site has applications for all these student loan deferment options.

Forbearance

Forbearance also enables you to suspend or reduce your monthly student loan payments temporarily. But with forbearance, interest will still accrue during that time.

As with deferment, you can either choose to pay the interest while you’re on forbearance or add it to your balance at the end.

There are two types of forbearance: general forbearance and mandatory forbearance.

General forbearance is strictly optional and granted to you by your student loan servicer. Reasons that could qualify you for this include financial trouble, high medical costs, a recent change in where you work, and anything else your servicer identifies as a viable reason.

Another word for general forbearance is “discretionary forbearance,” and it can only last for one year at a time (though you can apply again the next year). The eligible loan types are:

  • Direct Loans
  • FFEL Loans
  • Perkins Loans

You can only apply for forbearance for a total of three years on Perkins Loans, though there are no such limits for FFEL or Direct Loans unless set by your servicer.

As for mandatory forbearance, it also lasts for one year at a time, and you can continue to apply as needed. If you qualify, your servicer must grant you forbearance. You can qualify for mandatory forbearance in the following cases:

  • If you are in a qualifying medical or dental internship or residency and have Direct or FFEL Loans
  • If your monthly payments are more than 20 percent of your monthly gross income and you have Direct, FFEL, or Perkins Loans
  • If you’ve earned a national service award for your position in AmeriCorps and have Direct or FFEL Loans
  • If you qualify for Teacher Loan Forgiveness
  • If you are eligible for a U.S. Department of Defense Student Loan Repayment Program and have Direct or FFEL loans
  • If your governor has activated you as a member of the National Guard, but you’re not currently eligible for military deferment and have Direct or FFEL Loans

The federal government’s student aid site has applications for all these forbearance options.

Private student loan repayment options you should know about

So what if you have private student loans? Although the repayment options that come with federal student loans aren’t available to you, that doesn’t leave you in the dust.

Whether you recently graduated, are well into your repayment, or are just signing up for your first loan, it’s a good idea to stay on top of the repayment options your lender offers.

Below are the various repayment options that come with private student loans, though not all lenders offer all of these options. (And your lender might have similar options but by a different name.) You’ll need to confirm what’s available to you with your lender to get the specific details on these.

During school

Private student loans often come with the option to pay during or after school. Below are some options you might see for repayment during school.

Fixed reduced monthly payments during school

This is an option to pay a small amount per month while you’re in school. Typically, the payment will be $25 per month.

Full monthly payments during school

This is an option to pay the full monthly amount of your student loans while you’re in school. In other words, you’d pay interest plus the monthly payment on your principal balance.

Going for this option doesn’t just help you graduate with less debt, it also helps you keep your interest in check compared to a fixed smaller monthly repayment plan.

Interest repayment during school

If you’d like to keep up with interest payments while you’re in school but are afraid you can’t afford much more than that, the interest repayment option is probably what you want.

Deferred repayment until graduation

And if you don’t even want to think about payments until after you graduate, then you’ll want to select the deferred repayment option. This will cost you the most overall, but it also gives you the ability to go to school without worrying about making payments.

Whether or not you get a grace period after graduation will depend on your lender.

After school, if you’re experiencing financial hardship

Unfortunately, if you suffer financial hardship after you graduate, you don’t have as many repayment options as federal student loan borrowers. That said, you do have some choices.

Many private student loan lenders offer some help for financial hardship. This can often come in the form of deferment or forbearance. To find out what your lender offers and whether or not you qualify, you’ll have to speak directly with your lender.

A few other options to help you repay your student loans

No matter what type of student loans you have, there are always ways to help you repay them. As easy as it is to pick one of the above and just set it and forget it, why not do more if you can?

After all, the longer you take to repay your student loans, the more you’ll pay on them over time, thanks to compounding interest. The list below shares programs that can help you win the battle over interest rates on student loan debt.

Automatic payments for an interest rate deduction

Whether federal or private, student loan servicers love to know that your payments are going to be paid in full and on time. That’s why many offer an interest rate deduction if you sign up for automatic payments on their website.

This helps you in two ways. First, you can usually get an interest rate deduction of 0.25% — which can help you pay less on your loans over time since they’ll accrue less interest. Second, you won’t have to worry about remembering to make your payments.

Federal student loan forgiveness programs

We’ve already briefly talked about PSLF, a forgiveness program created to forgive the debt of not-for-profit and government workers. This plan only works if you make 120 qualifying payments under one of the previously mentioned qualifying federal student loan repayment plans.

PSLF has come under fire recently, but as of right now it’s still available.

There are a variety of other federal student loan forgiveness programs. These programs typically hinge on what you do for a living and are available to those who work for non-profits or the government, as well as teachers, lawyers, nurses, and doctors who work in specific areas.

Here is a complete list of federal student loan forgiveness programs.

Loan repayment assistance programs (LRAPs)

Like forgiveness programs, there are also student loan repayment assistance programs. These programs qualify you for money that you can use to help pay off your student loans. They’re awarded based off of where you live and what you do for a living.

Examples of this include LRAPs for teachers, nurses, physicians, and so on — and they are often awarded if you work in what’s considered to be an underserved area.

Here is a useful tool for searching for LRAPs in your state.

Student loan refinancing

And finally, there’s student loan refinancing. This option is for federal or private student loans or a mix of both. The benefit? Lower interest rates and improved repayment terms.

Depending on the terms you choose, refinancing could mean either paying off your debt faster or lowering your monthly payment. The lower interest rate is what makes this happen.

There is one caveat: Federal student loans turn into private student loans as soon as you refinance. That means losing all the federal repayment plans listed above. However, the lower interest rate could be worth it if you have a stable career and income.

Here are a few top student loan refinancing lenders.

Stay on top of your student loan repayment options

One of the best aspects of having so many student loan repayment options is that you don’t have to be stuck with one for the entire duration of your repayment period. Rather, you can change your plans as your life changes.

In other words, you don’t have to be so beholden to your plan that you can’t do anything else in life until it’s finished.

Here are some examples to keep in mind:

  • Have federal student loans? Remember that you can use options such as deferment or forbearance when times get tough. And you can even switch from standard or graduated repayment plans to income-driven repayment plans and back again.
  • Have private student loans? You can take advantage of deferment, forbearance, and unemployment protection if your lender offers it — and then start paying the full amount again when your situation improves.
  • And for all borrowers, it pays to know what can help you as your life changes. For example, if you change careers while you’re still paying off your loans, you may suddenly become eligible for certain repayment assistance programs.

The point is, you aren’t stuck forever with the same plan you graduated with. Be strategic about your loans so you can optimize for student loan repayment, while also creating the life you’ve always wanted.

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