The average starting salary for a college graduate is $52,569, according to the National Association of Colleges and Employers. Although that might sound like a lot of money when you’re fresh out of school and get your first job offer, that income can be stretched thin by taxes, the high cost of rent, and student loan payments.
When your grace period is over and your loan payments are due, you might find yourself struggling to pay your bills and keep your refrigerator stocked. If that’s the case, one way to reduce the burden and avoid student loan default is to switch your repayment plan.
If you have federal loans, signing up for a different repayment plan can reduce your monthly payment. You’ll likely pay more in interest over time, but you’ll have more wiggle room in your budget.
However, there are several different plans to choose from, and deciding between them can be confusing. Here’s an overview of your repayment plan options and how much you’ll pay back with each one.
Available repayment plans
When you graduate, you’re automatically placed on the Standard Repayment Plan, where you have a fixed payment and will pay off your loan within 10 years. If you’re struggling with your payments, you can change your loan repayment plan anytime, for free, to one of the following:
- Graduated Repayment Plan: Payments start low and increase over time. You’ll still pay off the loan within 10 years, but you’ll pay more in interest.
- Extended Repayment Plan: Changes your payment period from 10 to 25 years. You’ll have much lower monthly payments, but you’ll pay back more over the length of your repayment.
- Income-Driven Repayment Plan (IDR): The government extends your repayment term to 20 or 25 years and caps your payments at a percentage of your income. If your income increases, so do your monthly payments. There are four IDR plans: Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Contingent Repayment (ICR), and Income-Based Repayment (IBR).
How switching repayment plans affects the cost of your loans
Although reducing your monthly payment sounds attractive, alternative repayment plans can cost you thousands in the long run. Extending your repayment period will cause more interest to accrue, adding to your loan balance.
Even though switching payment plans can help you stay on top of your bills, it’s important to understand just how much more you’ll pay back.
For example, let’s say you’re single, live in Texas, and your discretionary income is $40,000 a year. You have the average student loan balance of $37,172 at 4.5% interest.
Under the Standard Repayment Plan, your payment would be $418 a month and you would pay back $45,144 in total.
By comparison, if you signed up for the Extended Repayment Plan, your monthly payment would be just $205 for 300 months. However, by the time you finished repaying your loan, you will have paid $61,353 — that’s an additional $16,000 in interest compared to a Standard Repayment Plan.
Here’s what you would pay back in total under the other repayment plans:
In the end, the amount you pay back can vary widely, depending on the type of repayment plan you choose. While opting for the lowest monthly payment can help you right now, it can add significantly to your total cost.
|Repayment Plan||Total Cost of Loan||Monthly Payment|
|Graduated||$48,243||$216 (first), $646 (last)|
|IBR||$47,941||$274 (first), $383 (last)|
|ICR||$49,989||$281 (first), $331 (last)|
|PAYE||$53,441||$183 (first), $383 (last)|
|REPAYE||$53,369||$183 (first), $450 (last)|
You can also see how your repayment plan affects your monthly payments. Though some plans offer fixed monthly payments, your bill on income-driven plans can change based on your income. In our example, we assumed a 5 percent annual increase in your discretionary income, making your last payment much larger than your first.
How to switch plans
Before switching your plan, use the Federal Student Aid Repayment Estimator tool to calculate your payments under each option. Once you’ve found one that works for your budget, contact your loan servicer by phone or email to see if you’re eligible. Depending on your income, you might only qualify for select plans.
Some plans require you to complete paperwork before they go into effect. Your loan servicer will tell you what forms you need to complete.
If you qualify for an income-driven repayment plan, you’ll have to submit an application each year re-certifying your income and family size.
Stay on track
Changing your repayment plan is not ideal since it can cost you thousands more over the length of your repayment. But sometimes, an alternative repayment plan is the difference between defaulting on your loans and staying current. If that’s the case, changing your student loan repayment plan can be a wise decision.
Before applying for a plan, do your homework to choose a plan that meets your needs. Doing so can help you protect your credit and stay on track with your loans.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|