Borrowers can now enroll in or switch income driven repayment plans online. The SAVE plan is temporarily blocked by a court order and those on the plan have been placed on a temporary non-interest bearing forbearance. Learn more.

Understanding Student Loans: Strategies & Repayment Plans

Your loan types will determine your repayment and relief options. It is thus important for you to understand what type of loans you have and the relevant terms and conditions.

Types of Student Loans

Federal Student Loans

Federal student loans are issued and administered by the U.S. Department of Education and are available for students attending approved higher education institutions. Federal loans should be your first choice when it comes to borrowing for college. They typically offer more protections, lower monthly payments based on income, a fixed interest rate, and access to forgiveness, disability discharge, and debt relief programs. 

Federal Student Loans in Detail

These loans are awarded based on FAFSA-defined financial need. The government pays the interest while you’re in school at least half-time, during the grace period, and during deferment periods.

Available to both undergraduate and graduate students. These loans are not based on financial need. Interest accrues from the moment they are disbursed, including while in school.

These loans are available to parents of dependent undergraduate students. Qualifying for a Parent PLUS loan is relatively easy since it’s not based on family income, assets, or outstanding debt. The main requirement is not having an adverse credit history, such as defaulting on debts, having debts discharged through bankruptcy, or having tax liens. 

These loans are unsubsidized, have a fixed interest rate, but have fewer repayment plan options, and cannot be transferred to the child. Parents can borrow up to the cost of attendance (tuition, room and board and personal expenses) minus financial aid offered to the student. Because borrowing limits can reach up to the cost of attendance, it may be easy to take on an unmanageable debt burden.

These loans are available to graduate or professional students. Like Parent PLUS loans, they are unsubsidized and require a credit check. Students may also borrow up to the cost of attendance. 

Allows you to combine multiple federal student loans into one or two loans with one monthly payment. This can simplify repayment. Consolidation may be beneficial in some cases but if you are pursuing a forgiveness program, like Public Service Loan Forgiveness, understand the consequences of consolidation.

Private Student Loans

Private student loans are offered by banks, credit unions, and other private lenders. These loans often require a credit check and may have variable interest rates and less flexible repayment options compared to federal loans. They should be your last resort since they are frequently the most expensive, depending on the borrower’s credit. If you must take them out, fixed-rate loans are generally safer and more predictable.

Private loans can be used when federal loans, grants, and scholarships don’t cover all educational costs. They typically require a good credit score, proof of earnings, or a co-signer. 

  • Interest Rates: Have fixed or variable rates, which can be higher than federal rates.
  • Repayment Terms: Less flexible repayment options.. 
  • Protections: Fewer borrower protections like deferment and forgiveness options and extremely difficult to release a cosigner. Private loans, however, are subject to a statute of limitations. 

Interest Rates

Interest is the cost of borrowing money, calculated as a percentage of the loan balance. For federal loans, rates are fixed throughout the life of the loan. Private loans may have fixed or variable interest rates.

Three Strategies for Tackling Student Debt

Most borrowers will select one of three paths when it comes to tackling their student loan debt. Knowing what path you will pursue is important as it will help determine the best repayment plan. If you need help selecting a plan, use our self-guided repayment strategy tool. 

  • Best For: Borrowers with low loan balances relative to their income.
  • Strategy: Make lump sum payments or pay more than the minimum required each month.
  • Goal: Reduce the loan balance quickly, minimizing interest paid over time.
  • Tips: Contact your servicer to ensure extra payments are properly applied.
  • Best For: Borrowers with high loan balances with low-to-moderate incomes.
  • Strategy: Make minimum payments and pursue forgiveness through programs like PSLF or IDR Forgiveness.
  • Goal: Pay minimum required payments while meeting forgiveness criteria.
  • Tips: Ensure you meet program requirements and track progress. If you are pursuing this strategy, making extra payments on your debt is not advisable. Your goal is to get the most forgiveness possible.
  • Best For: Borrowers who cannot realistically pay off their loans or achieve forgiveness.
  • Strategy: Make the minimum required payments under the cheapest repayment plan.
  • Goal: Manage debt sustainably without focusing on early repayment.
  • Tips: Be comfortable with carrying this debt knowing that federal student loans are discharged upon death, so they do not pass on to your estate or beneficiaries.

Repayment Plans for Federal Loans

There are two buckets of federal student loan repayment plans: Income Driven Repayment and traditional plans.


Income-Driven Repayment Plans

Traditional Repayment Plans

Pros


  • Affordable payments based on income

  • Loan forgiveness after 10-25* years of payments, or just 10 years with PSLF.

  • Required for other forgiveness programs.

  • Flexibility to adjust payments whenever income changes.

  • More predictable payments.

  • Shorter repayment period in some cases, potentially paying off loans faster.

  • No annual recertification or income verification.

Cons

  • Annual renewal and income verification required.

  • Potential interest accumulation over extended repayment period.

  • Longer repayment period, extending time to become debt-free.

  • Higher monthly payments, potentially challenging for those with limited income.

  • Limited flexibility in adjusting payments.

  • No forgiveness.

Plan Names

  • Saving on a Valuable Education (SAVE)

  • Pay As You Earn  (PAYE)

  • Income-Based Repayment (IBR)

  • Income-Contingent Repayment (ICR)

  • Standard

  • Graduated

  • Extended

*10 year forgiveness only available to borrowers in SAVE with original loan balances of $12,000 or less. 

Income Driven Repayment (IDR) Plans in Detail

Under IDR Plans, payments are based on income, family size and tax-filing status. They forgive remaining balances after making 10-25 years of payments with no employment requirement, or just 10 years under Public Service Loan Forgiveness. You must recertify these plans every year because they are based on your income. You can enroll in an Income Driven Repayment plan online at studentaid.gov/idr.


Saving on a Valuable Education (SAVE)

Pay As You Earn (PAYE)**

Income Based (IBR) (New Borrowers)

Income Based (IBR)

Income Contingent (ICR)***

Eligibility

All Direct Loan borrowers

Income-eligible, Direct loan borrowers (cannot have outstanding Direct or FFEL loans issued before 10/1/2007 and must have Direct loans issued on/after 10/1/2011)

Income-eligible Direct loan borrowers (first loans issued on/after 7/1/2014)

Income-eligibleDirect or FFEL loan borrowers (any loans issued before 7/1/2014)

All Direct Loan borrowers

Monthly Payments

5-10% of borrower’s discretionary income*

10% of borrower’s discretionary income

10% of borrower’s discretionary income

15% of borrower’s discretionary income

The lesser of 20% of borrower’s discretionary income or the loan balance amortized over 12-years and adjusted for income

Repayment Term

10-20 yrs (if you have only undergrad loans)

10-25 yrs (if you have any graduate loans)

20 yrs

20 yrs

25 yrs

25 yrs

Pros

Outstanding balance forgiven after 10-25 yrs; interest subsidy; & lowest monthly payments*

Outstanding balance forgiven after 20 yrs & lower monthly payments

Outstanding balance forgiven after 20 yrs & lower monthly payments

Outstanding balance forgiven after 25 yrs

Outstanding balance forgiven after 25 yrs

Cons

Forgiveness loan balance may be subject to income tax after 2025

Forgiveness loan balance may be subject to income tax after 2025

Forgiveness loan balance may be subject to income tax after 2025

Forgiveness loan balance may be subject to income tax after 2025

Limited forgiveness due to high monthly payments. Forgiveness loan balance may be subject to income tax after 2025

*For SAVE, the monthly payment is capped at 5% of discretionary income if you have only undergraduate loans and 10% if you only have graduate loans. If you have both, it will be a weighted average between 5-10%.

**PAYE will not be available to borrowers not already enrolled in the plan from 7/1/24.

***ICR will not be available to non-Parent Plus borrowers not already enrolled in the plan from 7/1/24.

Traditional Repayment Plans in Detail

Under traditional plans, monthly payments are based on the loan balance, interest rates and a set payback period. These plans are not eligible for forgiveness and are best suited for people who can pay off their debt within a reasonable time, those not pursuing a federal forgiveness program, or those with high income who simply cannot afford an Income Driven Repayment plan. To enroll in a traditional plan, you must contact your student loan servicer.


Standard Plan

Graduated Plan

Extended Plan

Eligibility

Direct and FFEL Loan borrowers (consolidated or unconsolidated loans)

 Direct and FFEL Loan  borrowers (consolidated or unconsolidated loans)

Borrowers with at least $30,000 in unconsolidated loans or between $40,000 and $59,999 in consolidated loans

Monthly Payments

Remains Fixed over the life of the loan

Increases every two years over the life of the loan

Fixed or increases over time

Repayment Term

10 yrs (up to 30 yrs for Consolidation Loans)

10 yrs (up to 30 yrs for Consolidation Loans)

 25 yrs

Pros

Pay less in interest over time. Ideal if your income is high enough to comfortably cover the payments.

Lower monthly payment initially. Ideal if you expect your income to grow over time.

Lower monthly payments. Suitable for those needing lower monthly payments.

Cons

High monthly payments

Payments increase throughout the repayment period

Pay more in interest

Determine your student loan repayment strategy, keeping in mind that your approach might involve not paying off your entire balance, but instead pursuing forgiveness options.

Use our Determine Your Student Loan Repayment Strategy Tool if you want guided assistance.

Then enroll in a repayment plan that aligns with your strategy and start making on-time monthly payments.

Use our Student Loan Repayment Checklist to make sure you’re all set to go!


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