Repayment Plans

Confused? Overwhelmed? You’re Not Alone!

The process of navigating different repayment options can quickly become confusing and overwhelming.

We’re going to lay out your options of the different student loan repayment plans and tools that’ll help you find the right one for you.

Find Out What Type of Loan You Have

The first thing you need to know is what kind of student loan you have and when you took it out. There are two main types of loans: federal and private.

To find out if you have federal student loans, visit the U.S. Department of Education’s central database for student aid to find out. Visit the “Financial Aid Review” section of the site and enter in your personal information to access a list of all federal loans made to you. When you click each loan you can see who the loan servicer is (they collect bills from you), and what company or office you’ll work with to enroll in the repayment plan you’ve chosen. The most common name of federal student loans are Direct, Stafford, Grad PLUS, and Perkins. Be sure to pay attention to the date of when your loans were issued, because the date impacts what kind of repayment plan you are eligible for.

To find out if you have private student loans, contact your school’s financial aid office, which should be able to confirm your loan information. If your school doesn’t have documentation of your private student loans, you can request a free credit report from Annual Credit Report, which will provide you a list of private student loans in your name (you are entitled to one free credit report from this service every year). Private (non-federal) student loans, are typically called private or alternative and are issued by a bank, credit union, your school, a state agency or a nonprofit organization.

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Make Sure You’re Not in Delinquency or Default

It’s also important to know if your loan is in delinquency or default, as that status will impact your available options. Learn more about delinquency and default »

Types of Repayment Plans

Income-Driven Repayment Plans
Income-Driven Repayment Plans tie what your monthly payment is to your discretionary income (the difference between your income and a percent of the poverty guideline for your family size and state of residence), and if you have any leftover balance at the end of the repayment period it will be forgiven. It’s important to know that any balance forgiven will be taxed by the IRS as income in these plans.

If you want to pay off your student loan more quickly, enrollees in these income-driven repayment plans are not penalized for overpayments payments. If you switch out of an income-driven repayment plan back to a Standard Repayment Plan, you will have to pay any unpaid interest as a fee. For that reason, it makes the most sense to remain in an income-driven repayment plan because the amount you pay will never exceed a Standard Repayment Plan amount and it gives you more flexibility for managing other household expenses and debt.

Income-Based Repayment

You’re eligible for an Income-Based Repayment plan if took your loan out before July 1, 2014, and if what you would pay under Income-Based Repayment is less than what you would pay under the Standard Loan Repayment plan. Income-Based Repayment limits your monthly payment to 15 percent of your discretionary income, but never more than the Standard Repayment Plan. After 25 years of payments, any remaining balance will be forgiven – but anything that is forgiven in this repayment plan is considered taxable income.

Pay As You Earn (and “New Income-Based Repayment” for loans taken out after July 1, 2014)

You’re eligible for Pay As You Earn and “New Income-Based Repayment” plans if your loan was taken out after October 1, 2007, and includes a loan disbursement on October 1, 2011, or if you took out your loan after July 1, 2014, and if what you would pay under Pay As You Earn or New Income-Based Repayment is less than what you would pay under the Standard Loan Repayment plan.

These repayment plans limit your monthly payment to 10 percent of your discretionary income, but never more than the Standard Repayment Plan. After 20 years of payments, any remaining balance will be forgiven – but anything that is forgiven in this repayment plan is considered taxable income.

Income-Contingent Repayment

You’re eligible for an Income-Contingent Repayment plan if you have a Direct Loan. Income-Contingent Repayment limits your monthly payment to the lesser of these two options: 20 percent of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income. After 25 years of payments, any remaining balance will be forgiven — but anything that is forgiven in this repayment plan is considered taxable income.

Income-Sensitive Repayment

You’re eligible for an Income-Sensitive Repayment plan if you have federal Family Education Loan Program loans only. Income-Sensitive Repayment calculates your monthly payment based off of your gross monthly income for five years, then will default to the Standard or Graduated Repayment Plan. At most, you will make payments under this plan for 10 years.

Standard Repayment Plan
The Standard Repayment Plan is the default repayment plan you are placed in once you graduate from college unless you work with your servicer to enroll in another repayment plan. The amount you pay is calculated like a mortgage: you take the total you owe and spread it out evenly over 10 years plus interest. If you make all of your payments on time, you’ll pay your loans off in 10 years.

Pros: You’ll pay the least amount of interest in this plan. You’ll pay your loan off the quickest in this payment plan.

Cons: If you’re trying to take advantage of Public Service Loan Forgiveness, there would be no remaining balance to forgive.

Graduated Repayment Plan
The Graduated Repayment Plan is a repayment plan where you start with lower monthly payments than the Standard Repayment Plan, but every two years the amount you pay will increase. This plan is aimed at debtors who start in low-paying careers but expect to become high-income earners over time. If you make all of your payments on time, you’ll pay your loans off in 10 years.

Pros: You will start with low monthly payments.

Cons: If your income doesn’t increase like you expected, your monthly payments can become extremely expensive.

Extended Repayment Plan
The Extended Repayment Plan is just what it sounds like: instead of paying your loan back in 10 years, you stretch it out to up to 25 years. Your monthly payment will be calculated the same way that the Standard and Graduated Repayment Plans are calculated. To be eligible for this plan, you have to have at least $30,000 in debt in Federal Family Education Loan or Direct Loans.

Pros: You will pay a smaller amount every month than you would in the Standard or Graduated Repayment Plans.

Cons: You will pay much more over the life of the loan than you would in other repayment plans, and it will take longer to pay back the loan.

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