Student Loan Repayment Plans

    Many of the 4.2 million borrowers who defaulted on student loans in 2017, could have avoided it by enrolling in an income-driven student loan repayment plan. These programs offer affordable payment plans based on your income, family size and state location. Find out which student loan repayment plan is best for you.

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    Types of Repayment Plans

    Perkins Loans & Private Loans

    If you have a Perkins Loan or a private loan, your repayment options will differ, but may be similar. You can find your repayment terms for these loans on the promissory note you signed when you took out the loan.

    Review Types of Student Loans

    Requirements & Terms

    Each plan has its own set of terms and requirements, but one rule that applies to all of the programs is that you may switch from one plan to another for free. In other words, you can jump from the Standard Repayment Plan to the Income-Based Repayment Plan and on to the REPAYE plan at no cost. Review the information below to better understand your repayment plan options.

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    • Standard Repayment Plan

      You are automatically assigned this repayment plan if you do not choose among the others. It saves you money over time because your monthly payments may be slightly higher than payments made under other plans, but you’ll pay off your loan in the shortest time.

      Eligible Loans

      • Subsidized and Unsubsidized Direct Loans
      • Subsidized and Unsubsidized Federal Stafford Loans
      • Direct and FFEL PLUS Loans (made to parents and students)
      • Direct and FFEL Consolidation Loans

      Monthly Payment

      Fixed amount of $50 or more.

      Time Frame

      Up to 10 years.

      Comparison

      You pay the least amount of interest over time than other plans.

    • Extended Repayment Plan

      You must have more than $30,000 in Direct Loan debt and not carry an outstanding balance on a Direct Loan as of October 7, 1998 to qualify for this repayment plan. This is a good plan if you will need to make smaller monthly payments.

      Eligible Loans

      • Subsidized and Unsubsidized Direct Loans
      • Subsidized and Unsubsidized Federal Stafford Loans
      • Direct and FFEL PLUS Loans (made to parents and students)
      • Direct and FFEL Consolidation Loans

      Monthly Payment

      You can choose either fixed payments or ones that start low and increase every two years.

      Time Frame

      Up to 25 years.

      Comparison

      Since the repayment period will be 25 years, your monthly payments will be less than those under the Standard Plan. You will pay more interest because your loan is on a longer repayment plan.

    • Graduated Repayment Plan

      Your payments start low, but increase every two years, but no single payment will be more than triple that of a previous payment amount. If you expect that your income will steadily increase over time, this plan may the best for you.

      Eligible Loans

      • Subsidized and Unsubsidized Direct Loans
      • Subsidized and Unsubsidized Federal Stafford Loans
      • Direct and FFEL PLUS Loans (made to parents and students)
      • Direct and FFEL Consolidation Loans

      Monthly Payment

      Start low, increase every two years.

      Time Frame

      Up to 10 years.

      Comparison

      You pay more interest than Standard Plan, but payments become easier as your income increases over time.

    • Income-Based Repayment Plan

      This repayment plan requires you show a partial financial hardship and is based on income, family size and state of residency.

      Eligible Loans

      • Subsidized and Unsubsidized Direct Loans
      • Direct and FFEL PLUS Loans (made to students)
      • Subsidized and Unsubsidized Federal Stafford Loans
      • Direct and FFEL Consolidation Loans (made to students)

      Monthly Payment

      These are 15 percent of your discretionary income, which is based on a formula that includes your adjusted gross income, family size and state of residence.

      Time Frame

      Up to 25 years.

      Comparison

      While you pay more for your loan over time, payments are lower than Standard Plan. You may qualify for forgiveness of outstanding balance after only 10 years, but could pay income tax on amount forgiven.

    • Income-Contingent Repayment Plan

      If you do not have a financial hardship, but have low income, this plan could offer you some flexibility.

      Eligible Loans

      • Subsidized and Unsubsidized Direct Loans
      • Direct PLUS Loans (made to students)
      • Direct Consolidation Loans

      Monthly Payment

      These are based on a formula that includes your adjusted gross income, family size and state of residence. They are 20 percent of your discretionary income.

      Time Frame

      Up to 25 years.

      Comparison

      While you pay more for your loan over time, your outstanding balance can be forgiven after 10 years, based on certain qualifications. You could pay income tax on amount forgiven.

    • Income Sensitive Repayment Plan

      The Income Sensitive Repayment Plan is aimed at borrowers in low-paying jobs. It is a short-term solution for borrowers facing major financial problems. Only Federal Family Education Loans (FFEL) are eligible.

      Eligible Loans

      • FFEL Stafford Loans
      • FFEL Unsubsidized Stafford Loans
      • FFEL PLUS Loans
      • FFEL Consolidation Loans

      Monthly Payment

      Between 4% and 25% of borrower’s gross monthly income. Borrower chooses what percentage.

      Time Frame

      Must be renewed every year for a maximum of 10 years.

      Comparison

      Using ISR for more than 1-2 years will dramatically increase the amount of interest you pay on your loan. If financial woes continue, consider consolidating loans.

    • Pay-As-You-Earn Plan

      This plan is synonymous with the 'Obama Student Loan Plan.' If you are facing a partial financial hardship, this plan offers you the lowest monthly payment amount of the repayment plans based on your income, family size and state of residency.

      Eligible Loans

      • Subsidized and Unsubsidized Direct Loans
      • Direct PLUS Loans (made to students)
      • Direct Consolidation Loans (made to students)

      Monthly Payment

      These are 10 percent of your discretionary income, which is based on a formula that includes your adjusted gross income, family size and state of residence. They are adjusted annually.

      Time Frame

      Up to 20 years.

      Comparison

      Lower payments than Standard plan. Continue making payments under this plan even if you no longer have a partial financial hardship. Outstanding balance can be forgiven after 10 or 20 years, based on certain qualifications. You could pay income tax on amount forgiven.

    Starting Your Repayment Plan

    Upon the start of your loan payback, you’ll be automatically enrolled in the Standard Repayment Plan, unless you choose to sign up for a different program. If you do enroll in one of the income-driven programs, you can change to a different repayment program at any time, for free! For example, there is no fee to jump from the PAYE (Pay As You Earn) program to the REPAYE (Repay As You Earn) program.

    Consolidated Loans & Repayment Plans

    Consolidated loans are eligible for repayment plans as long as the loans are consolidated into a Direct Loan or Federal Family Education Loan. Many students choose to consolidate loans to avoid the confusion of multiple payments at different times of the month. Once loans are consolidated, you are responsible for a single payment only.

    The exception to this rule is that you cannot use the Income-Contingent or Pay As Your Earn repayment plans if you have a FFEL or FFEL Consolidation Loan.

    When Can I Consolidate?

    As soon as you graduate, leave school or drop below half-time enrollment, you can consolidate your loans. If you consolidate your loans during your grace period, you will relinquish the remainder of your grace period and start repayment after your consolidation loan is paid out.

    Unless you receive a deferment or forbearance on your loan, you can expect your first bill about two months after the consolidation loan is disbursed.

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    Author

    Bill Fay
    Staff Writer

    Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

    Sources

    1. Mayotte, B. (2016, March 30) Income Sensitive Repayment: the Forgotten Student Loan Plan. Retrieved from https://www.usnews.com/education/blogs/student-loan-ranger/2016/03/30/income-sensitive-repayment-the-forgotten-student-loan-plan
    2. NA, ND. The Income-Sensitive Repayment Plan is available to low-income borrowers who have Federal Family Education Loan (FFEL) Program loans. Retrieved from https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-sensitive
    3. NA, ND. Income-Sensitive Repayment for Federal Student Loans. Retrieved from https://www.edvisors.com/repay-student-loans/federal/plans/income-sensitive
    4. U.S. Department of Education. Federal Student Aid. (2013, April 14). Retrieved from http://studentaid.ed.gov/repay-loans/understand/plans
    5. FinAid. Repayment plans. (2013, April 15). Retrieved from http://www.finaid.org/loans/repayment.phtml
    6. American Student Assistance. Student Loan Statistics. (2013, April 17). Retrieved from http://www.asa.org/policy/resources/stats/
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