Everything You Need to Know About Student Loan Repayment

Renee Layberry
May 4, 2021

Getting familar with the repayment options on your student loans is your first step to becoming financially free. Knowing what you owe can help you better budget and better plan to pay your student loans off as fast as you possibly can. Knowing your repayment options can help you make choices that make sense to your overall finanical health.   Student loans can be federal or private, secured through the federal government or private financial institutions. Nearly 70% of college students need those loans to fund their higher education. After graduation, it's time to start paying them back.   According to a recent Forbes article, the average student loan debt is over $32,000. Paying off this amount of debt can take years, so having a repayment plan in place upon graduation is important.    Whether you're a freshman just beginning your journey through higher education or a new graduate designing your repayment plan, read on to learn more about student loan repayment and how to manage your student loans.  

Federal vs. private student loan repayment plans

Your path to student loan repayment depends largely on the type of student loans you have.   Two types of student loans are available. They include:
  • Federal student loans. These are provided to you through the United States Department of Education. There are four types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. Some of these are based on financial eligibility, while others are not. By completing a Free Application for Federal Student Aid, you can find out which loans you're eligible for.
  • Private student loans. These are provided by private lenders such as banks, credit unions, and private student loan companies. To obtain these loans, most students need to have a cosigner because they don’t meet the required credit score or income threshold. Private loans typically come with a higher interest rate than federal loans.
  As you explore the following types of student loan repayment plans, keep your type of loan in mind. You may have both federal and private loans.   Federal loans are eligible for many repayment options that private loans don't offer. That means you have to devise a repayment plan that's suitable for your loan type and approved by your lender to ensure you're on the right track to paying off your loans.   More >> There's more to private vs federal student loans, make sure you understand how they differ   student celebrating graduation with confetti Photo by Keith Luke

Federal student loan repayment options

Student loan repayment plans come in a variety of forms. While every repayment plan may not be available to everyone, you will probably have a couple of options when it comes to paying back your loans. Understanding these repayment plans is key to ensuring you select a plan that fits within your budget and guides you toward your goal of paying off the loan in full.   Learn more about your options below.  

Standard Repayment Plan for federal student loans

Typically, the goal of the Standard Repayment Plan is to have your loan paid off in 10 years – or in 10 to 30 years if you have consolidation loans.    The Standard Repayment Plan calculates your monthly payment based on how much you have to pay every month to have your loan paid off in a decade. The biggest advantage to this plan is that you typically pay less over the life of the loan. That's because you will pay this loan off in less time, which results in fewer interest payments.    So, if you can afford the monthly payment, the Standard Repayment Plan may be a good option for you. However, if you are eligible for Federal Loan Forgiveness programs (or might be at a later date), you may want to consider another repayment plan to ensure you don't pay your loans off too quickly and miss out on this benefit.   More >> Understanding student loan interest rates will level-up your financial literacy, so get to it!  

Graduated Repayment Plan for federal student loans

As your career evolves, your salary will grow with it. During the first few years of your career, you’ll be earning an entry-level salary. Later, you should have more disposable income that you can put toward your student loan debt.   A Graduated Repayment Plan is built with your salary progression in mind.    During the first couple of years of your loan repayment, your monthly payments will be lower. Every two years, your payments will increase, putting you on a path to pay off the loan in 10 years. Typically, you will pay more interest with this loan than you will with a Standard Repayment Plan, but the slowly increasing amounts may fit into your budget more easily, making it a viable option for you.   recent college grad using her iPad in the park Photo by Stefan Vladimirov

Extended Repayment Plan for federal student loans

An Extended Repayment Plan takes longer to pay off, allowing your monthly student loan payments to fit more easily into your budget. This payment plan is reserved for loans exceeding $30,000, so if you have a small loan, you'll need to look for another option.    This plan aims to pay off the loan in 25 years, with your monthly payment either fixed or graduated. Since this repayment plan lasts longer, you'll see lower monthly payments, which can be helpful if you're living on a tight budget. However, over time, you'll pay more interest because you'll be paying on the loan for 25 years, not 10.  

Revised Pay As You Earn(REPAYE) Repayment Plan for federal student loans

If you have direct federal student loans, the Revised Pay As You Earn (REPAYE) Repayment Plan requires you to pay 10% of your monthly discretionary income toward your student debt.    This payment is calculated annually and depends on your income and family size. If you are married and your partner also works, both of your incomes will be considered when calculating your payment amount. The biggest advantage of this plan is that your outstanding balance after 20 years is forgiven.  

Income-Based Repayment Plan (IBR) for federal student loans

Similar to the REPAYE Plan, the Income-Based Repayment Plan requires you to pay 10% or 15% of your monthly discretionary income toward your loan. The percentage that you pay depends on when you initiated the student loan.    Every year, you will submit your updated income and family size to determine how much you will pay monthly. Unlike the REPAYE Plan, your partner's income will only be counted toward your total discretionary income if you file your taxes jointly.    Like the REPAYE Plan, you will have any outstanding balance forgiven at the 20- or 25-year mark, again depending on when you initiated the loan.   person using iPhone calculator in front of bills Photo by Kelly Sikkema

Income-Contingent Repayment Plan (ICR) for federal student loans

The Income-Contingent Repayment Plan is designed for individuals with direct federal student loans.    Two figures will be calculated to determine your monthly payment: 20% of your discretionary income; and the amount you would pay on the loan with a 12-year fixed payment plan. The lesser of those two figures will be the amount of your monthly payment.   Like other income-based plans, you must update your income and family size annually so that your monthly payment is accurately calculated. Your spouse’s income or loan debt is considered only if you file your taxes jointly (or choose to jointly repay), and any outstanding balance is forgiven after 25 years.  

Income-Sensitive Repayment Plan for federal student loans

The goal of the Income-Sensitive Repayment Plan is to pay off your student loan debt in 15 years.    Only Federal Family Education Loans (FFELs) that are ineligible for Public Service Loan Forgiveness are eligible for the Income-Sensitive Repayment Plan.    Your monthly payment will be based on your income, ensuring that your loan is paid off in 15 years. You’ll pay more over time than under the 10-year Standard Repayment Plan; however, the monthly payments may be lower.  

Federal Student Loan Forgiveness

When choosing a repayment plan, it's important to consider your eligibility to have your student loans forgiven through Federal Student Loan Forgiveness programs. If, for example, you're eligible for student loan forgiveness based on your occupation, you may not want to sign up for an aggressive repayment plan that pays your loan off before you can apply for forgiveness.   Typically, only direct federal student loans and FFEL loans are eligible for loan forgiveness programs.    More >> The 3 student loan repayment secrets you need to kno  

Public Service Loan Forgiveness

The Public Service Loan Forgiveness program erases any remaining student loan debt after you have paid 120 qualifying payments on the loan. Eligible individuals must work full time for a U.S. federal, state, or local government or nonprofit organization. If you are eligible, those 120 payments must be made under a qualifying repayment plan.  

Teacher Loan Forgiveness

Teachers may also qualify for a form of student loan forgiveness. To be eligible, you must have taught in a full-time position for at least five consecutive academic years in a low-income elementary or secondary school, or in an educational service agency. This forgiveness program allows for up to $17,500 in loan forgiveness on Direct Loans or FFEL Program loans.   glasses sitting on an open notebook next to a laptop Photo by Dan Dimmock

Private student loan repayment options

There are much less options availble when it comes to paying back your private student loans. Private student loans won't qualify for income-driven repayment options like federal loans, but depending on your lender there may be options.   If you're curious as to what those options are, your best bet is to check with your private lender. You might be able to temporarily reduce payments depending on what the lender can offer. Remember, it never hurts to ask!  

Refinancing your private student loans

If you - or a cosigner - have a good credit score of at least 600 or higher, you might want to consider refinancing your private student loans. Refinancing is consolidating your loans into one payment at a lower interest rate with different terms to save you money monthly and/or over the term of your loan.   Some lenders will let you refinance your federal student loans and you may qualify for a lower interest rate by doing this, but do keep in mind that refinancing your federal loans means you lose access to the benefits that are associated with them. That means you can't use an income-driven repayment plan or loan forgiveness once you refinance.   Only refinance your federal student loans if you're confident that you will never need to take advnatage of these options and that saving interest is the only important thing to you.   More >> Should you refinance your student loans? We're answering the questions you probably have  

Repayment timeline

When you’re in college, you’re not required to make any payments against your student loans. Once you graduate, you usually have a grace period before loan payments begin, giving you the chance to secure steady employment.    Most federal student loans give you a 6-month grace period after graduation before your loan payments begin. However, many private student loans do not offer this grace period. That means it's important that you don't simply assume that you have a grace period after graduation. Every loan is different.    In fact, if your circumstances change, you might find that the grace period for your federal student loan repayment is actually extended. For instance, if you are called to active military duty for more than 30 days before the end of your grace period, you will receive the full six-month grace period when you return from active duty. The same thing happens if you return to school (at least half-time) before the end of your loan's grace period.   On the other hand, if you consolidate your loans during the grace period, your payments will begin immediately. So, always talk to your lender about your grace period and when you can expect your monthly payments to begin.   More >> We know student loan grace periods are tricky, that's why we're helping you make sense of them  

How to start making monthly loan payments

Once the grace period ends, you will begin receiving monthly bills for student loan repayments, with a monthly payment due based on the repayment plan you select. If you do not choose a repayment plan, your loan provider will select the Standard Repayment Plan.   You will send payments or pay them electronically directly to your lender. Consider an automatic electronic payment, which ensures that you never miss a payment. What's more, signing up for automatic withdrawals can provide an interest rate deduction if you have a direct loan.  

Choosing the right payment plan for you

Repaying your student loans doesn't have to be complicated or overwhelming. However, you should take some time to consider the best student loan repayment plan for you. Look at these key factors as you evaluate different plans:  
  • Length of repayment. A shorter repayment plan will result in less money spent overall. While you will likely make higher monthly payments, you will pay off your student loans earlier, resulting in significant savings in interest.
  • Your budget. Obviously, your budget is an important factor in your student loan repayment plan. Choose a repayment plan that allows you to meet your monthly payments easily. You don't want a loan payment that's too high and overwhelms your budget and creates stress.
  • Consolidation. Even before repayment begins, consider consolidating your loans if you have several. You can consolidate multiple federal loans into one, which simplifies your life. You can also consolidate your private loans, and refinance them. That's especially worthwhile if you can secure a lower interest rate.
  • Set repayment goals. Set a goal for when you want to pay off the loan or how much you want to pay off every year. Doing so will allow you to measure your progress and celebrate achievements as you work toward being completely debt-free.
  Repaying your student debt requires an understanding of your loans, a thoughtfully chosen repayment plan, and uninterrupted monthly payments. Together, these strategies will allow you to repay your student loan in full and move forward in your life.