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.

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.
  • After 20 years:
    • Income-based repayment for new borrowers on or after July 1, 2014.
    • Pay as You Earn repayment.

Borrowers in certain public service professions repaying through income-based, income-contingent and Pay as You Earn options may qualify for public service loan forgiveness after 10 years of repayment. Under income-based repayment and Pay as You Earn, 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. Amounts forgiven under income-based, income-contingent and Pay as You Earn 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).

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

Pay as You Earn

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 our tools to ensure you can afford your student loan debt.

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

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