money·5 min read

What Are Your Federal Student Loan Repayment Options?

A woman looking at a student loan statement and using a calculator
Design: theSkimm | Photo: iStock
Aug 25, 2022

Way back when, you signed on the dotted line. Now you might owe thousands in student loans. That’s fun. If those loans came from Uncle Sam, you’ve got a bunch of different ways to pay that money back. 

Oh, and, it’s worth noting that President Biden recently announced a plan to forgive up to $10,000 in federal student loan debt for individuals earning less than $125,000 per year, and up to $20,000 for those who received Pell Grants. So that could make your balance smaller. Still have debt? There’s now a new way to repay it, too (more on that later). 

What are my student loan repayment options?

There are eight different federal repayment plans. You pick one, but can change your mind anytime. Pros: options are great. Cons: too many options can be overwhelming. Especially when they all sound kinda the same. Here’s what you need to know.

  • Standard Repayment Plan: Open to everyone. And usually the default selection. Your payments are fixed and calculated to make sure you’ll be loan-free within 10 years. This is the quickest path to paying off your loans, so your payments may feel high. But you’ll pay less in interest over time by not dragging things out.

  • Graduated Repayment Plan: Another option for anyone who wants to be done with federal loans in 10 years. Payments start low, but go up every two years. You might pick this option if your income is on the lower end now, but you think it’ll increase in the future.

Aren’t there options that let you pay based on your income?

Yep. We’ll break down three popular ones below. If you’re eligible for Public Service Loan Forgiveness, you have to sign up for one of these. Oh, and you may owe income tax on any money that’s forgiven.

Psst...whenever you see the words “discretionary income” below, drink. And keep in mind that the gov defines that as the difference between your adjusted gross income – your annual income minus deductions – and 150% of the poverty line for your family size in your state. This calculator can do that math for you. You’re welcome.

  • Revised Pay As You Earn Repayment Plan (REPAYE): For certain borrowers with FFEL and Direct Loans. Payments are generally 10% of your discretionary income and recalculated each year based on any updates to your paycheck and family size. If you’re married, both incomes count.

  • Pay As You Earn Repayment Plan (PAYE): For people with eligible Direct Loans who borrowed money after Oct 1, 2007, and received a disbursement (aka loan payout) after Oct 1, 2011. Stay with us. Payments are capped at 10% of your discretionary income. You only qualify if your monthly bill is lower than it would be on the Standard Repayment Plan.

  • Income-Based Repayment Plan (IBR): Good if you’ve got a lot of debt compared to your income. You’ll pay 10-15% of your discretionary income, depending on when you first borrowed the money.

  • Income-Contingent Repayment Plan (IRC): If the other plans aren’t an option, ICR might be. Anyone can choose this plan, and your payment will either be 20% of your discretionary income, or the amount you’d pay on a repayment plan with a fixed payment over the next 12 years. 

  • Income-Sensitive Repayment Plan: If you’ve got FFEL loans, consider this one. The payment will be based on income, and the loan will be paid in full in 15 years. 

Didn’t Biden’s student loan forgiveness plan also include a new plan for IDR?

Yup. Biden’s student loan forgiveness plan also included provisions for yet another income-driven repayment plan. Most notably, this plan would give borrowers the option of capping loan payments at 5% of discretionary income — that’s half of the amount of the previous plans. And, it would raise the amount that’s considered non-discretionary income to 225% of the federal poverty level. Hint: If you make less than $15 per hour, you probably won’t have to make a payment. Oh, and this plan only requires 10 years of repayment for forgiveness instead of 20 for borrowers with less than $12,000 of debt.

That’s a lot of info. What if I’m still not sure what my best option is?

Think about it like this: the right plan should either save you money today or in the future. If your goal is to pay the least amount of interest possible, the Standard or Graduated plans may be for you. If you need the money in your wallet now, look at income-driven options instead. And if you’re still not sure, this repayment calculator might help.

theSkimm

Unless you know exactly what you want upfront, it’s a good idea to read the whole menu before picking an entrée. The same logic applies for federal repayment plans. 

Updated Aug. 25 to include info on Biden’s student loan forgiveness plans and new repayment options.


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