College · July 17, 2020

Know Your Options for Federal Student Loan Repayment Plans

Having options is empowering—and when it comes to repaying your student loans, you may have more options than you think. There's a variety of repayment plans that can work with many career paths, income situations and long-term financial goals. When you understand the repayment methods available to you, you can choose the one that makes the most sense for your lifestyle and budget.


Standard student loan repayment plans

Standard repayment plans offer fixed payments over a fixed term. While the payments under this plan might be higher than other plans, you'll save more in interest with the shorter repayment term.

Your payments will depend on the amount you borrowed, and the term is fixed at 10 years, except for specific types of federal consolidation loans. If you're using a standard repayment plan for loan consolidation, your total loan balance will determine your fixed term, which could be up to 30 years.

Graduated loan repayment plans

If you're headed into the workforce with a lower salary but expect a raise as you move up the ladder, a graduated federal student loan repayment program could make sense.

Your payments will start off lower and increase every 2 years. The payment amount will always equal at least the amount of interest accrued since your last payment. Graduated repayment plans are usually for 10 years unless you have a federal consolidation loan. Then, terms can increase up to 30 years depending on your loan balance.

Extended loan repayment plans

If you have a student loan balance in excess of $30,000 and need lower payments over a longer term than the standard federal student loan repayment plan, an extended plan might be right for you.

With the longer term and lower payments, you'll end up paying more interest over the life of your loan. However, if you have higher monthly obligations and still need to work a student loan payment in, the lower payment of extended plans could best fit your budget. Terms are fixed at 25 years, and payment can either be fixed or graduated.

Income-based student loan repayment plans

If you need a repayment method that's tailored to your income and family size, the government offers four income-based plans. If you're pursuing public service loan forgiveness, you'll want to choose one of these repayment programs.

Overall, these programs take the size of your family into account and calculate payments that are a percentage of your discretionary income. With some programs, your payment could be more than the standard repayment program. Your interest will continue to accrue, especially if your income qualifies you for substantially low or no payment.

You'll be required to make payments for a maximum of 20 to 25 years, depending on the program. After that time, any outstanding balance will be forgiven, and you'll have to pay income tax on the forgiven loan amount.

With all programs, you'll need to verify your income and family size annually. If you're married, your spouse's income will only be considered as a basis for repayment if you file a joint tax return. 

The four most commonly available income-based repayment options include:

  • Revised Pay As You Earn Repayment Plan: Ideal for those with high loan balances and moderate to low income levels, payments are set at 10% of your discretionary income. Terms are fixed at 20 years for undergraduate loans and 25 years for graduate loans. Payment could be higher than the standard loan repayment plan if your income spikes.
  • Pay As You Earn Repayment Plan: This plan is similar to the revised version. However, if your income jumps significantly, your payment amount is capped at the same amount as a standard repayment plan.
  • Income-Based Repayment Plan: With this plan, your payments will be either 10% or 15% of your discretionary income—depending on if you qualify as a new borrower. The plan caps payments at the 10-year standard repayment plan amount.
  • Income-Contingent Repayment Plan: This plan sets your payment at the lesser of two options—either 20% of your discretionary income or a fixed payment that would equal an income-adjusted payment for a period of 12 years, recalculated annually. Only those with direct student loans are eligible for this plan.

Now that you know about the four types of federal student loan repayment plans, you can make a plan for your repayment strategy. Keep in mind that you can change your repayment plan at any time for free. You'll simply need to reach out to your loan servicer to make the change.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.