money·4 min read

Understanding Federal Repayment Options

May 19, 2020

The Story

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. 

Related: Federal Student Loans in the Time of Coronavirus

Go on.

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.

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.


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.

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