Repayment Options

Federal student loan borrowers can choose from several flexible options for paying back their education loans. A little planning before you begin repaying your loans can help you avoid missing payments – or, worse, defaulting on your student loans.

Standard Repayment

Applies to: Stafford, PLUS, Consolidation loans.

Description: Equal monthly payments of at least $50 per month over a period of up to 10 years (up to 30 years, depending on education debt levels, for Consolidation loans), excluding periods of deferment and forbearance.

Advantages: Fixed monthly payments; typically results in lowest total loan costs.

Drawbacks: Payments may not be affordable, if your debt is large relative to your income.

Best for: Borrowers who can afford the standard monthly payments typically will pay the lowest total interest costs under this option. If the standard payment amount exceeds 8 to 10 percent of your gross monthly income, you might consider one of the other repayment options to obtain a payment you can afford.

Income-Related Repayment Options

Applies to:

  • Income sensitive: Available only for loans through the Federal Family Education Loan Program.
  • Income-contingent: Direct Loans only, except Direct parent PLUS loans.
  • Income-based: All loans except parent PLUS loans and consolidation loans that repaid parent PLUS loans.
  • Pay as You Earn: Direct Loans only, except Direct parent PLUS loans and consolidation loans that repaid parent PLUS loans. FFELP borrowers may qualify through consolidation.
  • Revised Pay as You Earn (REPAYE): Direct Loans only; except Direct parent PLUS loans and consolidation loans that repaid parent PLUS loans. FFELP loan borrowers may qualify  through consolidation.

Description: These options all tie monthly student loan payments to a borrower’s income levels, so payments are likely to be more affordable than under the other payment plans.

Advantages: Affordable payments. Borrowers may qualify for forgiveness of remaining balances:

  • After 25 years:
    • Income-contingent repayment.
    • Income-based repayment for borrowers who had loan balances prior to July 1, 2014.
    • REPAYE repayment for borrowers with loans they received as a graduate or professional student.
  • After 20 years:
    • Income-based repayment for new borrowers on or after July 1, 2014.
    • Pay as You Earn repayment.
    • REPAYE repayment for borrowers with only undergraduate student loans.

Borrowers in certain public service professions repaying through income-based, income-contingent,  Pay  as You Earn and REPAYE options may qualify for public service loan forgiveness after 10 years of repayment. Under income-based repayment, Pay as You Earn and REPAYE, subsidized loans may be eligible for interest subsidy during first three years of repayment.

Drawbacks: Income-sensitive repayment is much less flexible because the payment term is limited to 10 years (15 years with a special forbearance provision), and monthly payments must cover accruing interest. Under income-based and income-contingent repayment, payments may be less than accruing interest, which means loan balance may actually increase while the borrower is making payments. Under current tax  law, amounts forgiven under income-based, income-contingent, Pay  as You Earn and REPAYE options will be treated as taxable income to the borrower. To qualify for income-based and Pay as You Earn repayment options, borrowers must demonstrate a partial financial hardship, meaning that payments under a standard repayment option would exceed 15 percent of their discretionary income (10 percent for borrowers under the Pay as You Earn plan and under income-based repayment for new borrowers on or after July 1, 2014). (There is no partial financial hardship requirement for ICR or REPAYE.)

Best for: Especially beneficial for borrowers who have large amounts of student loan debt relative to their incomes.

Loan Consolidation

Applies to: All federal loan types.

Description:  A Direct Consolidation loan may replace multiple federal student loans with a single consolidated loan and, depending on the borrower’s total education debt, permit payments over a period of up to 30 years.

Advantages: Helps borrowers manage repayment by combining multiple loans into one loan with one payment to one entity. Extended payback period results in lower monthly payments.

Drawbacks: Weighted average interest rate calculation can result in slightly higher interest rate. Total interest costs can be significantly higher because of longer repayment term and lower payments.

Best for:  Borrowers who are struggling to manage multiple monthly student loan payments, as well as borrowers with significant student loan debt who need a lower monthly payment.

Use the Federal Student Aid Repayment Estimator to estimate loan costs and monthly payments.

Federal student loans allow you flexible repayment options. USA Funds makes understanding those options easy:

Having trouble keeping track of your USA Funds loans or experiencing loan payment issues?