More than 90% of student debt today is in the form of federal loans. If you graduated from college recently and have a federal loan, you may have the option to temporarily postpone your payments, extend them, or lower them. The challenge is figuring out which of the eight major federal repayment plans is best for your situation.
Six months after you graduate (or otherwise leave college), you’ll typically be placed into a standard 10-year repayment plan with 120 equal monthly payments. If you earn enough to pay off your loans in this period or less, do it—unless you work in public service. (More on that in a minute.) You’ll end up saving thousands of dollars in interest, compared with other federal plans.
If you do work in public service, enroll in an income-driven plan, so that you can take advantage of a policy that will forgive any outstanding debt after 10 years.
If you’re struggling to pay your bills each month, you also should consider applying for an income-driven plan. There are five types, but the newest one—REPAYE—is the most generous, and available to the greatest number of people, so it’s likely to be your best option. Plus, it has no income-level qualifications, meaning anyone can enroll.
To find the right plan for you, start by visiting the National Student Loan Data System to track down the type of loan you currently have, the interest rate you’re paying, and how much you still owe.
You’ll need all that information to make the best use of the chart below, which outlines the qualifications and advantages of each of the federal repayment plans. On the other hand, if you’re looking to save some money by lowering your interest rate, check out this chart with private options for refinancing your loans.
|Federal Loan Repayment Plans |
These are the eight major repayment plans for federal student loans, including who can participate, how long you’ll be paying off your debt, and whether you can qualify for special federal benefits within a certain plan.
|Plan type||Who qualifies?||Years to repay||Monthly payment||Public Service Loan Forgiveness after 10 years?||Outstanding debt cancelled at the end of repayment?|
|Standard||All||10||Same throughout repayment.||No4||No5|
|Graduated||All||10||Increases every 2 years.||No||No|
|Extended||Direct1 and FFEL2 loans from after Oct. 7, 1998, greater than $30,000 balance.||25||10% or 15% of discretionary income. Changes with income.||No||No|
|Income-Based Repayment||All who have a partial financial hardship.3||20 or 25||10% or 15% of discretionary income. Changes with income. Will never be more than under Standard plan.||Yes||Yes|
|Pay As You Earn||Direct loans from after Oct. 1, 2007. Must have a partial financial hardship.||20||10% of discretionary income. Changes with income. Will never be more than under Standard plan.||Yes||Yes|
|Revised Pay As You Earn||All Direct loans.||20 or 25||10% of discretionary income. Changes with income.||Yes||Yes|
|Income-Contigent Repayment||All Direct loans.||25||The lesser of 20% of discretionary income or what you’d pay on a 12-year fixed payment plan. Changes with income.||Yes||Yes|
|Income-Sensitive Repayment||FFEL program loans.||10||Based on annual income. Each lender’s formula for determining amount varies.||No||No|