Repayment flexibility is one of the biggest benefits of federal student loans. All that flexibility means there are a ton of student loan repayment plan options to choose from. You want to pick the smartest plan that helps you reach your student loan repayment goals but it can be confusing to choose.

 

Today’s post compares the federal repayment plans and lays the framework for decision-making. After you’ve read this you will be able to choose the right student loan repayment plan based on your specific financial circumstances and goals.

Estimated read time ~10 minutes.

 

A Breakdown of Repayment Plans

 

Plan	Qualifies for Loan Forgiveness	Payments Based on Income	Interest	Maximum Duration of Repayment
Standard	No	No	You will pay the least interest under this plan	10 years 10-30 years if consolidation loan
Graduated	No	No, but payments increase over time to repay total over 10 years	You will pay more interest than a 10 yr standard	10 years 10-30 years if consolidation loan
Extended	No	No, but payments can increase over time to ensure total repaid in 25 years	You will pay more interest than any plan with a shorter repayment term	25 years
REPAYE	Yes	10% of discretionary income	You will pay more interest than any plan with a shorter repayment term	20 years until forgiveness if only undergraduate loans, 25 years if graduate loans
PAYE	Yes	10% of discretionary income but never more than 10 year standard	You will pay more interest than any plan with a shorter repayment term	20 years until forgiveness
IBR	Yes	10 or 15 % of discretionary income but never more than 10 year standard	You will pay more interest than any plan with a shorter repayment term	20 or 25 years until forgiveness depending on when you received your loans
ICR	Yes	20% of discretionary income or a 12 year standard payment adjusted for income, whichever is less	You will pay more interest than any plan with a shorter repayment term	25 years until forgiveness
Income Sensitive Repayment	No, plan is only for FFEL loans which aren’t eligible for forgiveness	Based on monthly income but will repay total in 15 years	You will pay more interest than any plan with a shorter repayment term	15 years

 

 

Target Borrowers for Each Plan

 

Standard: Borrowers with low debt to income ratio are ideal candidates because the required monthly payments won’t eat up all the money needed for monthly cost of living.

 

Graduated: Borrowers who know their initial income will be low and that it will increase substantially with time.

 

Extended: Borrowers with > $30,000 in student loan debt and high debt to income ratios who aren’t looking for loan forgiveness.

 

REPAYE: Borrowers with a high debt to income ratio who are unable to afford payments under other plan types and would benefit from forgiveness of the loan balance after 20-25 years of making payments or those who are seeking PSLF.

 

PAYE: New borrowers on or after Oct 1^st 2007 with a high debt to income ratio looking for loan forgiveness through PSLF or income-driven loan forgiveness after 20 years.

 

IBR: Borrowers seeking PSLF or income-driven loan forgiveness with a high debt to income ratio who are unable to afford payments under other plan types.

 

ICR: This plan is eligible for PSLF however the monthly payment is typically higher than other income-driven repayment plans, so this may not be the best choice for most borrowers. ICR is ideal for a a parent who consolidated a Parent PLUS loan into a Direct Consolidation Loan and is looking to obtain PSLF.

 

Income sensitive Repayment: A borrower with FFEL loans who is seeking more affordable payments than the 10 year standard plan.

 

 

Choosing the Right Student Loan Repayment Plan

 

 

Deciding if you’re in the right repayment plan is pretty straightforward once you apply a consistent decision-making framework to your own financial situation. You’ll want to use the information in the chart above and read about the target borrower for each plan type to make your decision.

 

Here are the questions to ask yourself:

• Are you considering loan forgiveness? If yes, Standard, Graduated, Extended, and Income Sensitive aren’t for you. ICR also isn’t for you unless you’re a parent with a Direct Consolidation Loan.

 

• How quickly are you trying to get out of debt? If you want to be out of debt quickly, want to minimize interest, and aren’t looking for loan forgiveness the 10 year standard plan is the best federal repayment plan. However, if you have high income and excellent credit you could consider refinancing your student loans. Read about refinancing here.

 

• Are you seeking maximum affordability of your monthly payment? If you’re considering loan forgiveness or are just looking to pay the least amount of money each month REPAYE, PAYE, and IBR are your best repayment plan options. You will pay the most interest under these plans. If you obtain income-driven loan forgiveness after 20-25 years you will have to pay taxes on the amount of student loan debt forgiven.

 

Your next steps.

 

Alright what do you think of your repayment plan? Are you in the right one or do you need to make a change? Next week’s post will be all about how to change your repayment plan if you’re not in the right one. In the meantime, do yo have questions? Hit me up in the DM’s of the Repayable Facebook Page, Insta or Twitter (@therepayable), or send me an email jeni@repayable.org I’m happy to help!