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Student Loan Payment Options, Explained

So you got your education. Now it’s time to start paying the piper (ugh). Paying back your federal student loans can feel confusing and overwhelming. Let’s break down the four repayment options together, so you can find the one that works best for you.

Standard Repayment

It’s exactly what is sounds like: run-of-the mill loan repayment. On a standard repayment plan, you’ll pay back your loan (and interest) in its entirety over 10 years. With this option, you’ll pay off your loans quicker and pay less interest. The downside: the payments are usually higher than they would be on other repayment plans.

Income-Driven Repayment (IDR)

With income-driven repayment, your monthly payment is based on your income. The lower your income, the lower the monthly payment. However, it also extends your repayment period to up to 25 years. When the 25 years is up, though, many borrowers have the remainder of their loans forgiven. There are four kinds of IDR plans:

  • Saving on a Valuable Education (SAVE) Plan. A great option for those who need a low monthly payment. Generally speaking, the payments will be 5% of your discretionary income. Some people have payments as low as $0/month.
  • Pay as You Earn (PAYE) Plan. Payments are usually 10% of your discretionary income.
  • Income-Based Repayment (IBR) Plan. Payments are usually 15% of your discretionary income.
  • Income-Contingent Repayment (ICR) Plan. Payments are usually 20% of your discretionary income or what you’d pay on a standard repayment plan, adjusted to your income over 12 years.

Graduated Repayment

Like the Standard Repayment Plan, borrowers on this plan pay back their loans over the course of 10 years. You start with lower monthly payments, which increase every two years.

Extended Repayment

This plan is like a version of Graduated Repayment that lasts 25 years instead of 10. The payments start low and increase every two years. Borrowers can also choose to have a fixed payment (one that doesn’t change) for the entire 25-year period.

If you need to temporarily pause your student loan payments, you can apply for deferment or forbearance. Keep in mind that most loans will continue accruing interest in either of these situations.

Some public school teachers, nonprofit employees, and other public servants may be eligible for Public Service Loan Forgiveness after a certain amount of time in their field. If you think you’ll qualify for this loan forgiveness program, an income-driven repayment plan will probably help you pay less overall.

Paying back student loans can feel daunting, but with the right information, you can choose a repayment plan that works for you.