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Understanding Student Loans: Strategies & Repayment Plans
The One Big Beautiful Bill Act (OBBBA) signed into law in July 2025 makes sweeping changes to the federal student loan system starting July 1, 2026.
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
Direct Subsidized Loans
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.
Direct Unsubsidized Loans
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.
Parent PLUS Loans
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. Under current rules, parents can borrow up to the cost of attendance (tuition, room and board and personal expenses) minus financial aid offered to the student. But starting July 1, 2026, with some exceptions, limits will be applied to the amount that parents can borrow annually and in aggregate per child, and repayment options will be restricted to an updated version of the Standard Fixed Repayment plan.
Graduate PLUS Loans
These loans are currently available to graduate or professional students and like Parent PLUS loans, they are unsubsidized and require a credit check and students can borrow up to the cost of attendance. However, starting July 1, 2026, Graduate Plus loans, with some exceptions, will be phased out.
Direct Consolidation Loans
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 or Income Driven Repayment (IDR) 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.
Private Loans: Key Differences from Federal Loans
- Interest Rates: Have fixed or variable rates, which can be higher than federal rates at the time the loan is obtained.
- 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. If you’ve kept your private loan in good standing, you may be able to refinance if interest rates decline.
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.
1. Paying Off Debt Quickly
- 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 the life of the loan.
- Tips: Contact your servicer to ensure extra payments are properly applied.
2. Paying the Minimum for Forgiveness
- Best For: Borrowers with high loan balances and 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.
3. Paying the Minimum Until The End
- 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 (IDR) and traditional plans.
ALERT: If you take out new loans on or after July 1, 2026, you will be restricted to the Repayment Assistance Plan (RAP – IDR Plan) and the new Standard Fixed Plan (traditional plan). See details below.
Key Differences: Income Driven vs. Traditional Repayment Plans
Income-Driven Repayment (IDR) Plans | Traditional Repayment Plans | |
Pros | – Affordable payments based on income. – Loan forgiveness after 10-30 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 | – Income-Based Repayment (IBR) – Pay As You Earn (PAYE) – Phased out by July 1, 2028) – Income-Contingent Repayment (ICR) – Phased out by July 1, 2028 – Repayment Assistance Plan (RAP) – Available July 2026 | – Standard – Graduated – Extended |
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 10-30 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.
ALERTS:
- A settlement has been reached to eliminate the SAVE IDR plan, currently facing legal challenges. Once the court approves the settlement, The Department of Education will notify borrowers in the SAVE forbearance of the timeline for transitioning to a different repayment plan. Learn more.
- Parent Plus borrowers who are done borrowing before July 1, 2026, must consolidate their loans before July 1, 2026 (submit the application no later than the end of March 2026), enroll in ICR and make one payment in ICR to be eligible for the IBR plan.
Compare the Currently Available IDR Plans
Plan Name | Income Based Repayment (IBR) For New Borrowers | Income Based Repayment (IBR) | Pay As You Earn (PAYE) – Phased out by July 1, 2028 | Income Contingent Repayment (ICR) – Phased out by July 1, 2028 |
Eligibility | – Loans first disbursed on or after July 1, 2014. – No loans disbursed on or after July 1, 2026. – Direct Loans (excluding Parent PLUS, unless consolidated before July 1, 2026). – FFEL Loans (excluding Parent PLUS and FFEL Consolidation loans that include Parent PLUS). | – Loans issued before July 1, 2014. – No loans issued on or after July 1, 2026. Direct Loans (excluding Parent PLUS, unless consolidated). – FFEL Loans (excluding Parent PLUS and FFEL Consolidation loans with Parent PLUS). | – Must be income-eligible. – No outstanding Direct or FFEL loans issued before Oct 1, 2007. – Must have a Direct Loan issued on or after Oct 1, 2011. – No loans issued on or after July 1, 2026. Direct Loans only (excluding Parent PLUS or Consolidation loans with Parent PLUS). | – All Direct Loans (except Parent Plus which must be consolidated before July 1, 2026, to become eligible). – No loans issued on or after July 1, 2026. |
Monthly Payments | 10% of borrower’s discretionary income. | 15% of borrower’s discretionary income. | 10% 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 | 20 Years | 25 Years | 20 Years | 25 Years |
Pros | – Outstanding balance forgiven after 20 years and lower monthly payments. – Eligible for PSLF. | – Outstanding balance forgiven after 25 years. – Eligible for PSLF. | – Outstanding balance forgiven after 20 years & lower monthly payments. – Eligible for PSLF. | – Outstanding balance forgiven after 25 years. – Eligible for PSLF. |
Cons | Forgiven loan balance may be subject to income tax starting in 2026. | Forgiven loan balance may be subject to income tax starting in 2026. | Forgiven loan balance may be subject to income tax starting in 2026. | – Limited forgiveness due to high monthly payments. – Forgiven loan balance may be subject to income tax starting in 2026. |
Compare to Forthcoming Repayment Assistance Plan (RAP) – Available July 1, 2026
Plan Name | Repayment Assistance Plan (RAP) |
Eligibility | All Direct Loans (except Parent Plus or Consolidation loans containing Parent Plus). The only Income-Driven Repayment (IDR) plan available to student borrowers taking loans on or after July 1, 2026. |
Monthly Payments | 1%-10% of Adjusted Gross Income. $50 reduction for each dependent claimed on tax return. $10 minimum. |
Repayment Term | 30 Years |
Pros | – Interest and principal subsidies will ensure balance is reduced by at least $50 monthly (must make required payment to benefit). – Eligible for PSLF. |
Cons | No adjustment for inflation. Longer path to forgiveness. Forgiven loan balance may be subject to income tax starting in 2026. |
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.
Compare the Traditional Plans
Plan Name | Standard Fixed Plan (Current) | Graduated Repayment Plan | Extended Fixed Repayment Plan | Standard Fixed Plan (New) – Available Latest July 1, 2026 |
Eligibility | – Direct and FFEL loan borrowers (consolidated or unconsolidated loans). – No new loans issued on or after July 1, 2026. | – Direct and FFEL loan borrowers (consolidated or unconsolidated loans). – No new loans issued on or after July 1, 2026 | – Direct and FFEL loan borrowers with at least $30,000 in unconsolidated loans or between $40,000 and $59,999 in consolidated loans. – No new loans issued on or after July 1, 2026. | – Direct loan borrowers only. – The only traditional plan available to borrowers with Direct loans who receive new loans on or after July 1, 2026. |
Monthly Payments | Fixed over life of loan (based on loan balance, interest rate, and repayment term). | Increases every two years over the life of the loan. | Fixed over life of loan (based on loan balance, interest rate, and repayment term). | Fixed over life of loan (based on loan balance, interest rate, and repayment term). |
Repayment Term | 10 Years (Up to 30 years for consolidation loans depending on loan balance). | 10 Years (Up to 30 years for consolidation loans depending on loan balance). | 25 Years | 10-25 Years depending on loan balance). |
Pros | Pay less in interest over time. Best 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. | – Best if your income is high enough to comfortably cover the payments. – This is the only plan available to Parent Plus borrowers, who take new loans on or after July 1, 2026. |
Cons | – Potentially high monthly payments. – No loan forgiveness. | – Payments increase throughout the repayment period. – No loan forgiveness. | – Pay more in interest over life of the loan. – No loan forgiveness. | – No flexibility in repayment term. Repayment terms are not as generous as current traditional plans. – No loan forgiveness. |
What’s next?
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!
