Student Loan Repayment Plans 101

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Taking out a student loan is easy, relatively speaking, compared to paying it off. Six months after leaving school, repaying your loan becomes a must if you’re former student, and most recent graduates choose to complete the entire process though the basic federal student loan repayment plan.

For others, trying to balance a new job and the transition to handling new life responsibilities with often-large student loan repayment bills is a lot more difficult than it sounded when they were sitting in the financial aid office back at school.

If you’re one of those latter students, understanding your student loan repayment program options and fitting those options into the reality of your post-grad life can seem tough. That’s why it’s important to take the time to check out a breakdown of the six alternate choices you have to the 10-year, fixed amount repayment standard for paying off your student debts.

These choices are available to any former student with federal loans, and though they can be more expensive in the long-term than the standard repayment option (due to interest), they may save you, both in terms of managing your budget and keeping your credit score in line after college.

Income-Based Student Loan Repayment Options

The first set of student loan repayment options is based on your income after college, and it defines the amount you repay each month as a percentage of your income. In order to accomplish this, these income-based repayment plans extend your repayment period from the standard 10 to 20–25 years.

Using one of these four plans is a smart way to ensure that the burden of your loan repayment doesn’t outpace your earnings potential. This is particularly true if you happen to be in a slow-to-start field, such as non-profit work or the arts where real, steady income can take you years to build up.

Pay as You Earn (PAYE)

One of the harder programs to qualify for, Pay as You Earn, or PAYE, is a smart option if you’re left with a lot of debt compared to income or if your total student loan debt is substantially higher than your yearly discretionary income. Qualifications are based on the your income levels and your family size.

Details of the PAYE Program

  • Extended term to 20 years (undergraduate) or 25 years (graduate)
  • Payment capped at 10% of your discretionary income
  • Loan forgiveness after the extended term limit has passed

Revised Pay as You Earn (REPAYE)

Unlike the original PAYE plan, the REPAYE program has no income limits and is open to all borrowers with federal loans. It’s particularly well-suited for you if you cannot qualify for PAYE or the similarly-narrow IBR plan.

Details of the REPAYE Program

  • Extended term to 20 years (undergraduate) or 25 years (graduate)
  • Payment capped at 10% of your discretionary income
  • Loan forgiveness after the extended term limit has passed

Income-Based Repayment (IBR)

Like the Pay as You Earn program, the Income-Based Repayment plan is only available if you have a lower income or a lot of debt. Qualification is based on your income level and the size of your family. The main difference between IBR and PAYE is that IBR’s payment limits are a bit higher than those of the PAYE program.

Details of the IBR Program

  • Extended term to 20 years (borrowed on or after July 1, 2014) or 25 years (borrowed before July 1, 2014)
  • Payment capped between 10% and 15% of your discretionary income
  • Loan forgiveness after the extended term limit has passed

Income-Contingent Repayment (ICR)

This is the oldest alternate repayment program sponsored by the federal government, and it’s notable because it’s the only one that allows parent PLUS borrowers to change their repayment plan options. The details of this plan are thus less generous, but they offer a middle-of-the-road solution if you cannot pay your basic student loan rate but you may be able to afford to pay more each month than the PAYE, REPAY or IBR amounts.

Details of the ICR Program

  • Extended term to 25 years
  • Payment capped at 20% of your discretionary income
  • Loan forgiveness after the extended term limit has passed

Basic Student Loan Repayment Options

For certain former students, the income-based repayment options are overly complex for their needs. This is especially true when you consider that you need to reapply for these programs each year. Instead, choosing an alternate form of the basic student loan repayment option, such as either a graduated or extended plan, may be a better solution for you.

Graduated Student Loan Repayment Plan

The graduated student loan repayment plan is a smart option if you have a temporarily low income that you expect to increase steadily over time. It may or may not extend the time period required for you to repay the loan. Rather than define your repayments based on your income, it uses a standard calculation to increase your payment every two years until you have paid the loan in full.

Details for the Graduated Loan Repayment Program

  • Terms between 10–30 years
  • Payments start low and increase at a steady rate every two years
  • Payments may not be less than the accrued interest between your payment periods
  • Payments may not be more than three times your lowest payment

Extended Student Loan Repayment Plan

If you like the predictability of a regular loan payment, you may be better suited to the extended basic repayment plan. This type stretches out the repayment of your student loan to an extended term and thereby lowers your monthly burden of paying it off but increases the total interest you pay.

Details for the Extended Loan Repayment Program

  • You must have a $30,000 or more balance on your FEEL or Direct Loan
  • Term extended to 25 years
  • Payments are either fixed or graduated

Student Loan Repayment Calculator

Before you apply for an alternate student loan repayment plan, it’s a good idea to make sure that you’re confident about the plans you qualify for and that you know which one is right for your situation. The Office of Federal Student Aid offers borrowers a student loan repayment calculator function through its web portal.

By signing into your account and using your specific data and figures, you can get an accurate picture of what your student loan payment could be under any of the alternate plans available to you with federal student loan repayment options.

Caryn Anderson
Caryn Anderson combines extensive behind-the-scenes writing experience with her passion for all things food, fashion and finance. Anderson honed her craft while earning her B.S in Communication Studies from New York University.

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