Student Loan Repayment: Find the Best Plan for You

Loans, Student Loans
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Repaying your student loans can be more complicated than just making a payment each month. For one thing, there are eight different plans you can choose from to repay your federal student loans, including four that are based on your income level.

You’re not eligible for those plans if you have private student loans. Your lender may offer other flexible repayment options, or you can refinance your student loans to get a lower interest rate if you qualify.

Here’s what you need to know about repayment plans:

Choosing the federal repayment plan that’s best for you

Understanding federal income-driven repayment plans

Applying for income-driven repayment

Understanding basic federal repayment plans

Repaying private student loans

Choosing the federal repayment plan that’s best for you

The right federal student loan repayment plan for you depends on factors such as your income, family size and job. Here’s how to sort through your plan options.

  • Choose an income-driven plan if public service forgiveness is an option: Public Service Loan Forgiveness is a federal program available to government and nonprofit employees. If you’re eligible, you can get your remaining loan balance forgiven tax-free after you make 120 qualifying loan payments. You need to make most of those payments on a federal income-driven repayment plan to benefit from PSLF. Otherwise, you’ll end up paying off the loan before you’re eligible for forgiveness.
  • Not eligible for PSLF? Stick to the standard plan if possible: The standard plan is the default federal repayment plan. On it, you’ll make equal monthly payments for 10 years. If you can afford the standard plan, you’ll pay less in interest and pay off your loans faster than you would on other federal repayment plans.
  • Can’t afford the standard plan? Explore your other options: The government offers six alternative repayment plans to make your payments more manageable, including four income-driven plans and the graduated and extended repayment plans. Plug your student loan information into the government’s repayment estimator to see what you’d pay under each plan based on your outstanding loan balance, interest rate, income and family size.

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Understanding federal income-driven repayment plans

Income-driven plans set your monthly payment at between 10% and 20% of your discretionary income and increase your loan term from the standard 10 years to 20 or 25 years. They also forgive any remaining loan balance at the end of that term, but you’ll have to pay income taxes on the amount that’s forgiven. Although these plans typically give you a lower monthly payment than the standard plan does, you’ll end up paying more in interest.

There are four income-driven plans plus an income-sensitive plan that is available only to low-income borrowers with Federal Family Education Loans. The plan that’s best for you depends on when you first borrowed, your income and family size. Click on the names of each plan for more details.

Income-driven plan nameTerm length (years)Monthly payment cap (% of discretionary income)
NerdWallet Note
Income-based repayment
20 or 2510% or 15%Qualification is based on your income and amount of outstanding debt.
Income-contingent repayment 2520%The only income-driven plan available to parent PLUS loan borrowers.
Pay As You Earn2010%Qualification is based on your income and amount of outstanding debt.
Revised Pay As You Earn20 or 2510%Any borrower with an eligible federal direct loan qualifies.

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Applying for income-driven repayment

  1. Go to studentloans.gov or request a paper application from your loan servicer: As part of the application, you’ll need to include information about your income and family size. If you apply online, you can do this electronically through the IRS Data Retrieval Tool. If you use a paper application, you’ll need to attach a copy of your federal income tax return or an IRS tax return transcript.
  1. Select an income-driven plan or let your servicer decide which plan is best for you: The Department of Education recommends that you do the latter. If you do, your loan servicer will put you on the plan with the lowest monthly payment you qualify for.
  1. Recertify each year: You have to recertify your income and family size each year to remain on an income-driven plan. If your income or family size changes, your monthly payment could change, too. Your loan servicer will inform you of your deadline for reapplying. Missing the deadline has consequences:
  • If you’re enrolled in the Income-Based Repayment, Income-Contingent Repayment or Pay As You Earn plan, your monthly payment will revert to the amount you would pay on the standard repayment plan, meaning it will no longer be based on your income. If you’re enrolled in the Revised Pay As You Earn plan, you’ll be put on an alternative repayment plan based on the amount you still owe.
  • You’ll have an assumed family size of one. If your family is larger, this could increase your monthly payment or make you ineligible for IBR or PAYE.
  • If you’re on IBR, PAYE or REPAYE, any unpaid interest will be capitalized, or added to your principal balance. This will increase the total amount of interest you’ll pay.

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Understanding basic federal repayment plans

Basic repayment plans don’t depend on your income and include the standard, graduated and extended repayment plans. Unless you elect otherwise, you’ll be on the standard plan automatically; contact your loan servicer to switch to a graduated or extended plan.

Basic repayment plan nameTerm length (years)NerdWallet Note
Standard repayment10You'll save the most money on this plan.
Graduated repayment10Your payment will start low and increase every two years.
Extended repayment
25You'll have lower monthly payments but pay more in interest with this plan.

Though the graduated and extended plans typically aren’t the best options compared with the income-driven plans, they can be right for some borrowers, especially those who don’t want to deal with reapplying for an income-driven plan each year, says Diane Cheng, associate research director at the Institute for College Access and Success.

Regardless of which repayment plan you’re on, you can always pay extra toward your federal student loans. Tell your student loan servicer to apply the extra payment to your current balance instead of counting it toward your next monthly payment; that will help you pay off your debt faster.

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Repaying private student loans

Private student loans don’t qualify for federal income-driven repayment plans or forgiveness programs. If you’re struggling to repay your private student loans, call your lender and ask about your options. Some private lenders have loan modification programs, and others have repayment plans designed to mimic federal repayment plans.

If you have good credit — a credit score at least in the mid-600s — you may be eligible for student loan refinancing. That can save you money if you qualify for a lower interest rate. Dozens of lenders offer student loan refinancing; compare your options before you apply to make sure you get the lowest possible rate.

Repaying student loans can be a headache. If you need more help, reach out to your federal student loan servicer or private lender with questions. With persistence and planning, you can pay down your student debt — even if that feat seems insurmountable now.

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Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

NerdWallet Staff Writer Brianna McGurran contributed to this report.

Updated March 31, 2017.