Published in: Student Loans | April 23, 2019

A Complete Guide to Student Loan Repayment Plans

Photo of Lyle Daly

By: Lyle Daly

Not sure which student loan repayment plan you should choose? Here's how you can decide.
A calculator, hundred dollar bills, a book, and pen all sit beside a paper reading Student Loan Repayment.Image source: Getty Images.

One of the biggest advantages of federal student loans compared to private loans is the wide variety of repayment plans available. The U.S. Department of Education gives you plenty of options when it comes to how you pay back your loans, making it easier to find one that works with your budget.

Whether you're picking your student loan repayment plan for the first time or making a switch, our guide will explain how each plan works and help you choose the perfect plan.

What kind of student loan repayment plans are available?

Although there are many student loan repayment plans, they all fall into one of two categories: standard plans and income-based plans.

When you have a standard plan, your monthly payments are fixed so that you'll pay your loan off by the end of the term. These plans are available for every type of student loan, and the plan options are:

  • Standard repayment plan
  • Graduated repayment plan
  • Extended repayment plan

In the case of income-based plans, your monthly payment depends on your income. Several of these loans qualify for loan forgiveness, which means that after a certain amount of time, you are relieved of your outstanding balance. Most also qualify for Public Service Loan Forgiveness (PSLF), meaning borrowers working full-time in public service can have their loans forgiven after making enough qualifying monthly payments. These are the income-based plan options:

  • Revised Pay As You Earn repayment plan (REPAYE)
  • Pay As You Earn repayment plan (PAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)
  • Income-Sensitive Repayment Plan

Let's go over the most important features of each of these plans.

Standard Repayment Plan

Key features

  • Monthly payment: One fixed amount for the entire loan term
  • Loan term: 10 years (consolidation loans range from 10 to 30 years)
  • Available for: All borrowers
If you can handle the monthly payment, then the Standard Repayment Plan is a smart choice. It usually results in paying the least interest, which means your loan will have a lower total cost when all is said and done.

The fact that the payment amount remains the same means that you'll never run into any surprises, and you'll never need to adjust your budget to accommodate a larger payment.

Graduated Repayment Plan

Key features

  • Monthly payment: Payments start low and increase over time, typically rising every two years
  • Loan term: 10 years (consolidation loans range from 10 to 30 years)
  • Eligible loans: Direct subsidized and unsubsidized loans, subsidized and unsubsidized federal Stafford loans, PLUS loans, consolidation loans (Direct and FFEL)
  • Available for: All borrowers
Like the Standard Repayment Plan, the Graduated Repayment Plan keeps your loan's total cost down. The difference is that your monthly payments will increase instead of staying the same.

This plan can work well if you're on a career path where your salary will consistently rise. You'll have an easier time making payments when you're just starting out at entry-level pay, and as your payment amount increases, your salary will be doing the same.

The main risk with this type of repayment plan is that if your salary doesn't go up, those larger payments could become difficult to manage.

Extended Repayment Plan

Key features

  • Monthly payment: Can be fixed or graduated
  • Loan term: 25 years
  • Eligible loans: Direct subsidized and unsubsidized loans, subsidized and unsubsidized federal Stafford loans, PLUS loans, consolidation loans (Direct and FFEL)
  • Available for: Direct or FFEL loan borrowers with more than $30,000 in outstanding loan balances
The Extended Repayment Plan gives you much more time to repay your loans, resulting in lower monthly payments but a much higher total loan cost. You can choose whether you want a fixed payment for the life of your loan or graduated payments that start low and increase later.

From a cost perspective, this repayment plan isn't ideal. That said, it may be your most realistic option if you have high loan balances.

How payments are calculated with income-based plans

Now that we're moving on to the income-based repayment plans, it's important to clarify how the Department of Education determines your payment amount.

Most income-based plans set the monthly payment amount at a portion of your "discretionary income." Under the REPAYE, PAYE, and IBR plans, your discretionary income is defined as the difference between your annual income and 150% of the federal poverty guidelines (which you can find here).

This can drastically lower your monthly payments if you have relatively low income. Let's say you have an adjusted gross income (AGI) of $30,000, live in the continental United States, and have one child. With a REPAYE plan, which requires monthly payments of 10% of your discretionary income, you'd start with payments of just $44 per month.

The ICR plan measures discretionary income differently, defining it as the difference between your annual income and 100% of the poverty guidelines. The Income-Sensitive Repayment Plan only uses your annual income and not the poverty guidelines.

Now let's get into the details of each income-based student loan repayment plan.

Revised Pay as You Earn Repayment Plan (REPAYE)

Key features

  • Monthly payment: 10% of your discretionary income, recalculated annually based on income and family size
  • Loan term: Up to 20 years for undergraduate study loans; up to 25 years for graduate or professional study loans
  • Eligible loans: Direct subsidized and unsubsidized loans, Direct PLUS loans made to students, direct consolidation loans that don't include direct or FFEL PLUS loans made to parents
  • Available for: Direct Loan borrowers with eligible loans
  • Qualifies for PSLF? Yes
A REPAYE can be a good choice if your income isn't that high, and you'll have the opportunity for loan forgiveness on any outstanding balance after 20 or 25 years. Keep in mind that when you have an outstanding balance forgiven, you might need to pay income taxes on it.

This plan may not work well for you if you're married. Whether you and your spouse file joint or separate taxes, you must include your spouse's income and loan debt to determine your discretionary income, so you could end up with a higher payment amount.

In some cases, REPAYE payments can actually be higher than what you'd pay on a Standard Repayment Plan.

Pay As You Earn Repayment Plan (PAYE)

Key features

  • Monthly payment: 10% of your discretionary income but never greater than what your payment amount would be on a Standard Repayment Plan, recalculated annually based on income and family size
  • Loan term: Up to 20 years
  • Eligible loans: Direct subsidized and unsubsidized loans, Direct PLUS loans made to students, direct consolidation loans that don't include direct or FFEL PLUS loans made to parents
  • Available for: Borrowers with a high debt-to-income ratio
  • Qualifies for PSLF? Yes
This plan is similar to REPAYE with a few important differences. The PAYE plan's monthly payments, unlike REPAYE'S, can't be greater than the amount you'd pay through a Standard Repayment Plan. If you have graduate or professional study loans, you'll also qualify for loan forgiveness faster at 20 years with PAYE compared to 25 with REPAYE (again, you may need to pay taxes on any forgiven amount).

If you're married, your spouse's income and loan debt will only factor into your discretionary income calculations if you two file jointly.

The Department of Education hasn't released any precise information on what a high debt-to-income ratio is, but it's a requirement to qualify for a PAYE.

Income-Based Repayment Plan (IBR)

Key features

  • Monthly payment: 10% or 15% of your discretionary income based on when you received your first loans, and never greater than what your payment amount would be on a Standard Repayment Plan; recalculated annually based on income and family size
  • Loan term: Up to 20 years or up to 25 years depending on when you received your first loans
  • Eligible loans: Direct subsidized and unsubsidized loans, subsidized and unsubsidized federal Stafford loans, all PLUS loans made to students, consolidation loans (Direct and FFEL) not including those made to parents
  • Available for: Borrowers with a high debt-to-income ratio
  • Qualifies for PSLF? Yes
An IBR is available for a wider variety of loans than PAYEs or REPAYEs, and you can also get loan forgiveness with this plan. The forgiven amount could count towards your taxable income, though.

For married borrowers, discretionary income is calculated just like it is with PAYE. That means your spouse's income and loan debt only affect your discretionary income amount if you two file jointly.

Income-Contingent Repayment Plan (ICR)

Key features

  • Monthly payment: 20% of discretionary income or the amount you'd pay on a repayment plan with a fixed payment and a term of 12 years (whichever is less); recalculated annually based on income, family size, and total loan amount
  • Loan term: Up to 25 years
  • Eligible loans: Direct subsidized and unsubsidized loans, Direct PLUS loans made to students, direct consolidation loans
  • Available for: Direct loan borrowers
  • Qualifies for PSLF? Yes

This is one of the more unique income-based payment plans, as there are two potential payment amounts. Like REPAYE, an ICR could have a monthly payment greater than what you'd pay under a Standard Repayment Plan, so it's not guaranteed that you'll cut your payments this way.

As with the other plans that offer loan forgiveness, you could end up paying income taxes on the amount that's forgiven.

Income-Sensitive Repayment Plan

Key features

  • Monthly payment: Based on annual income, must be enough to pay off loan within 15 years
  • Loan term: 15 years
  • Eligible loans: Subsidized and unsubsidized federal Stafford loans, FFEL PLUS loans, FFEL consolidation loans
  • Available for:  FFEL program loan borrowers
  • Qualifies for PSLF? No
The Income-Sensitive Repayment Plan is like a mixture of the standard plans and the income-based plans. It takes your income into account, but it also ensures you'll have your loans paid off in 15 years.

You'll pay a higher total cost for your loan with this plan than you would with a Standard Repayment Plan, and you can't qualify for loan forgiveness. Since the Income-Sensitive Repayment Plan only applies to FFEL program loans, it's not compatible with PSLF.

Other student plan repayment options

When you have multiple federal student loans, you also have the option of student loan consolidation. This allows you to combine all those loans so that you only have one payment to make every month.

One issue with consolidation is that you can lose benefits you have with your current loans, such as progress towards loan forgiveness. For that reason, you should avoid consolidating loans if it will cause you to lose important benefits. You can learn more about when to consolidate in our complete guide to student loan consolidation.

Another way to get better terms on your student loans is by refinancing. The top student loan lenders offer low interest rates, so you could also give them a look if you're interested in refinancing your loans.

Choosing your student loan repayment plan

Although there are many different repayment plans for student loans, narrowing down your options is easier than it seems.

Start by determining whether you could afford the payments on a Standard Repayment Plan or Graduated Repayment Plan. If so, one of those is the way to go, because it will result in the lowest possible total loan cost.

If neither of those plans is an option, then you should see which repayment plans you're eligible for based on the type of loans you have. Once you've done that, you can check which plan or plans fit your current financial situation.

Save thousands on student loan interest

Many people are missing out on lower student loan interest rates because they don't take the time to research their refinancing options. Our picks of the best student loan providers can help you save thousands of dollars in interest over time. Click here to uncover the best-in-class student loans providers we could find in 2019.