Student Loan Repayment Options: How to Choose the Right Plan for Your Budget and Goals
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Understanding Your Student Loan Repayment Options
Are you feeling overwhelmed or confused about student loan repayment? You’re not alone.
Between changing federal policies, varying loan types, and a wide range of repayment options, it’s normal to feel uncertain about next steps.
Here’s the good news: a student loan repayment plan can be structured to fit your income and credit, helping you achieve your financial goals and obtain a sense of peace. With the right plan, you can take control of your finances and build a stronger future.
Whether you’re starting repayment for the first time or returning after a period of forbearance or deferment, there are programs and strategies designed to help.
Federal Student Loan Repayment Plans Explained
There are two primary student loan types: federal student loans and private student loans. Let’s start with federal student loans, which are college or graduate school loans issued by the U.S. Department of Education (ED).
Borrowers with federal student loans have multiple repayment options, and they are broken down into distinct categories.
Standard Repayment Plan
The Standard Repayment Plan is the basic repayment option for loans under the William D. Ford Federal Direct Loan (Direct Program) and the Federal Family Education Loan (FFEL) Program. This plan features fixed monthly payments for up to ten years (or up to 30 for Direct Consolidation Loans). A Direct Consolidation Loan allows borrowers to combine multiple federal student loans into one new loan with a single monthly payment and a fixed interest rate based on the weighted average of the original loans. Compared to other federal repayment plans, this plan typically requires higher monthly payments but results in lower total interest costs and a shorter repayment period.
For full eligibility requirements, view the Standard Repayment Plan page on the StudentAid.gov website.
Graduated Repayment Plan
The Graduated Repayment Plan starts with lower monthly payments that increase every two years. It’s designed for borrowers whose income may be modest now, but is expected to rise over time.
For full eligibility requirements, view the Graduated Repayment Plan page on the StudentAid.gov website.
Extended Repayment Plan
The Extended Repayment Plan allows borrowers to make fixed or graduated (increasing) payments over a longer period than the Standard or Graduated Repayment plans, up to 25 years. The monthly payments are smaller; however, the total amount of interest paid over the life of the loan is typically higher. It’s designed for borrowers who need lower monthly payments and meet specific eligibility requirements.
For full eligibility requirements, view the Extended Repayment Plan page on the StudentAid.gov website.
Income-Driven Repayment Plans
Income-Driven Repayment (IDR) Plans allow borrowers to make monthly payments based on their income and family size. Within the IDR program, there are several specific plans, including:
- Income-Based Repayment (IBR) Plan
- Payments based on income; possible forgiveness after 20–25 years.
- Income-Contingent Repayment (ICR) Plan
- Payments based on income, family size, and loan amount; possible forgiveness after 25 years.
- Pay As You Earn (PAYE) Repayment Plan
- Payments capped at 10% of discretionary income; possible forgiveness after 20 years; no longer available to new borrowers as of
July 1, 2024.
- Payments capped at 10% of discretionary income; possible forgiveness after 20 years; no longer available to new borrowers as of
- Saving on a Valuable Education (SAVE) Plan
- Successor to REPAYE; payments are 5–10% of discretionary income; possible forgiveness after 20–25 years.
- Repayment Assistance Plan (RAP)
- Forthcoming plan for eligible borrowers; details on payments and forgiveness to be determined.
Comparison of Federal Student Loan Repayment Plans
| Plan | Payment Type | Term | Income-Based? | Forgiveness Eligible? | Notes |
|---|---|---|---|---|---|
| Standard | Fixed Monthly | 10 years (up to 30 years for Direct Consolidation Loans) | No | Possible (PSLF only) | Higher monthly payment, lower total interest |
| Graduated | Starts low, increases every 2 years | Up to 30 years | No | Possible (PSLF only) | Designed for expected income growth |
| Extended | Fixed or graduated | Up to 25 years | No | Possible (PSLF only) | Smaller monthly payments, higher total interest |
| Income-Driven Repayment | Based on Income | 20 – 25 years | Yes | Yes | Includes IBR, ICR, PAYE, SAVE, RAP |
Because IDR plans are based on income, borrowers must recertify their income and family size each year with their loan servicer. After 20 or 25 years of qualifying payments (depending on the plan and loan type), any remaining federal student loan balance may be forgiven.
For all eligibility requirements, view the Income-Driven Repayment Plans page on the StudentAid.gov website.
Recent Policy Changes
In the past few years, the federal student loan system has experienced significant changes through both legislation, including the One Big Beautiful Bill Act (OBBA), and administrative action by the Department of Education.
Several existing income-driven repayment plans including PAYE, REPAYE, and SAVE are being phased out. Current borrowers on these plans will need to select a replacement plan, such as the new Repayment Assistance Plan (RAP) or Income-Based Repayment, by July 1, 2028; borrowers who do not choose a plan may be automatically enrolled in RAP.
Under OBBA, new borrowers taking out federal student loans after July 1, 2026, will also experience significant changes, including:
- Graduate PLUS Loans eliminated for new borrowers
- Borrowing limits introduced for graduate programs
- Parent PLUS Loans capped
- New Repayment Assistance Plan (RAP) offered to eligible borrowers
- Possible requirement for some borrowers to enroll in RAP
- Revised eligibility rules for forgiveness programs
Private Student Loan Repayment Options
Private student loans are college or graduate loans issued by private lenders. Unlike federal loans, private student loans do not have the same repayment plans, borrower protections or eligibility requirements. However, many private lenders offer programs or refinancing options to make repayment more manageable.
Fixed or Variable Interest Repayment Plans
A fixed-rate loan keeps monthly payments consistent over the repayment period, while a variable-rate loan can increase or decrease over time depending on the terms of the loan. In some cases, lenders may allow borrowers to convert a variable-interest loan to a fixed-rate loan.
Interest-Only Repayment Plans
Under this option, borrowers pay only the monthly interest on a loan for a set period of time (which does not decrease the principal balance of the loan). This is typically an option for borrowers experiencing financial hardship and is not a long-term strategy for reducing student loan debt.
Lender-Specific Flexibility
Private lenders may offer repayment plans that are tailored to a borrower’s income, credit score, loan amount, debt-to-income ratio and other factors. These repayment plans vary by lender and can include lower interest rates or reduced fees. Borrowers can usually review available options by checking their lender’s website, logging into their online account, or contacting customer service to ask about hardship programs, modified repayment plans, or refinancing offers. It’s important to understand the unique repayment options each lender offers and compare them carefully before moving forward.
Loan Forgiveness & Relief Programs
While most loan forgiveness programs apply only to federal loans, some private lenders may offer limited relief programs under certain circumstances. Knowing all possible avenues and eligibility criteria for forgiveness and relief can guide career moves and long-term repayment planning.
Public Service Loan Forgiveness (PSLF)
Borrowers with federal loans may qualify for forgiveness of their Direct Loans after making 120 monthly qualifying payments (about 10 years) while working full-time for a qualifying employer, such as a government agency or a non-profit.
Examples of qualifying employment can include:
- Peace Corps Service
- Teach for America
- Federal, state, or local government organizations (e.g., Department of Veterans Affairs, U.S. Forest Service)
- Non-profit organizations with 501(c)(3) status (e.g., American Red Cross, YMCA)
- Public schools and educational service agencies ( e.g., New York City Department of Education, Los Angeles Unified School District, Miami-Dade County Public Schools)
Teacher Loan Forgiveness
Borrowers with federal loans may qualify for up to $17,500 in forgiveness on Direct Subsidized and Unsubsidized Loans, as well as Subsidized and Unsubsidized Federal Stafford Loans. To be eligible, they must teach for at least five consecutive years in eligible low-income schools or educational service agencies and meet other qualifications (such as being a “highly qualified” teacher under state standards, teaching mathematics or science at the secondary level, or serving children with disabilities in a special education role).
Income-Driven Repayment (IDR) Forgiveness
Borrowers enrolled in an IDR plan may be eligible for forgiveness after making 20 to 25 years of qualifying payments, as outlined in the terms of their repayment plan.
Total and Permanent Disability (TPD) Discharge
Borrowers with federal loans who are or become totally and permanently disabled can request to have their federal student loans fully discharged. A borrower is considered totally and permanently disabled, as defined by the official TPD application, if they cannot engage in substantial gainful activity due to a medically diagnosable impairment, and that impairment either results in death, has lasted at least 60 months, or is expected to last at least 60 months.
This process may require verification by government agencies or medical professionals.
Private Student Loan Relief Options
While private student loans are not eligible for federal forgiveness programs, some lenders may be able to provide payment solutions for temporary financial hardship or relief options. This can include a temporary pause in payments, the ability to skip a certain number of payments, co-signer release. Some lenders may also offer loan discharge due to death or permanent disability, depending on their policy.
Private student loan forgiveness is uncommon and borrowers seeking relief through a private lender should contact their servicer directly to understand all available options and requirements.
Consolidation & Refinancing
Both consolidation and refinancing can be useful tools for managing loans, especially for borrowers juggling multiple loans, or for loans that carry variable and/or high interest rates.
When it comes to federal and private student loans, there are key differences, as well as some pros and cons, to understand.
Pros
Federal Loans: While federal loans cannot be refinanced through the Department of Education (they can’t refinance their own loans), but they can be consolidated with other federal loans. This allows a single monthly payment for all federal loans. They will also provide a new interest rate that will be the weighted average of the current loans (rounded up to the nearest 1/8th). Consolidated federal loans may still be eligible for IDR plans and federal forgiveness programs.
Private Loans: Private student loans can be refinanced through a private lender. This may result in a lower interest rate, a fixed-interest rate, or a new loan term. Some private lenders also allow consolidation, which would offer a single monthly payment. This option varies by lender and may require meeting eligibility criteria.
Cons
Federal Loans: Federal loans can be refinanced through a private lender, but this converts them into private loans and eliminates eligibility for federal benefits. Alternatively, consolidating federal loans through the Department of Education can extend the loan term and result in higher total interest costs over the life of the loan.
Private Loans: Private student loans can be refinanced through other private lenders, but doing so could result in losing repayment options offered by the original lender, and possibly higher or variable interest rates or additional fees.
Consolidation vs Refinancing: Pros & Cons
| Loan Type | Pros | Cons |
|---|---|---|
| Federal |
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| Private |
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When Does It Make Sense?
A student loan consolidation or refinance can make sense in several different situations. This can include:
- Consolidating multiple loans to simplify payments
- Refinancing to reduce interest or remove variable interest
- Lowering monthly payments to improve affordability
For example, a borrower struggling to manage multiple loans may benefit from consolidation. A borrower concerned about a variable interest rate increasing their monthly payment may choose to refinance to a fixed-rate loan.
Before refinancing or consolidating, it’s critical to understand both the pros and cons and how each could impact monthly payments, and might in some cases, affect protections or eligibility for federal programs in the future.
Choosing the Right Plan for You
A common question regarding repayment plans is, “Which is the best?”
When it comes to financial planning and student loan repayment, there are many options, but the “best” plan varies from borrower to borrower. Several aspects of a borrower’s financial profile, such as income, can influence available repayment plans.
Income
A borrower’s income can impact repayment options and overall strategy. Borrowers who can comfortably make monthly payments and have higher income may choose to pay down the loan faster with a higher monthly repayment plan. This approach reduces total interest costs and can shorten the repayment period. Borrowers who are struggling to make payments may instead focus on making the minimum payment, or in some cases requesting a temporary pause until their financial situation improves.
Career Stability
For borrowers with a stable career, a standard repayment plan with fixed interest can provide consistent monthly payments and a clear payoff timeline. For those experiencing less career stability or periods of unemployment, options vary depending on the loan type (federal or private) and lender eligibility.
For eligible borrowers with federal student loans, switching to an IDR plan, or requesting forbearance or deferment may be the most practical solution. Borrowers experiencing career instability with private student loans should explore all options, including speaking with their loan servicer to understand hardship programs, and potentially switching servicers to access additional support if needed.
Loan Balance
The size of a loan balance can have a big impact on which repayment plan makes the most sense. For large federal loan balances, a graduated or extended repayment plan can help keep monthly payments manageable; however, these plans typically result in higher total interest costs.
For private student loans, interest rates play a key role. Even a small balance can become costly if the interest rate is high or variable. Borrowers should seek lenders offering low, fixed rates whenever possible, and consider refinancing or consolidating if rates or repayment terms become more favorable.
Family Status
Family status is especially important for federal loans, as borrowers must recertify their household size each year to remain in certain IDR programs. For private loans, family status generally has less impact on monthly repayment options, though it may affect eligibility for specific repayment plans or refinancing options, depending on the lender.
Budgeting Strategies to Stay on Track
Even the most well-designed repayment plan can falter if it’s not supported by a common-sense budget strategy. What’s a budget strategy? It’s a plan to manage spending, save regularly and achieve your financial goals.
If you’ve never budgeted before, or are seeking a new approach, the 50/30/20 Rule is a great place to start.
The 50/30/20 Rule
This rule is based on allocating your income as follows:
- 50% for essential needs such as food, housing and transportation.
- 30% for non-essential wants such as entertainment, clothing, or vacations.
- 20% for savings or paying down debt.
This rule can and should be modified to fit individual financial goals. For example, if debt remains a constant source of sleepless nights, it may be best to reduce non-essential spending to 10%, and increase savings or debt payments to 40%.
The 50/30/20 Rule
| Needs – 50% | Wants – 30% | Savings / Debt – 20% |
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AutoPay and Extra Payments
Many lenders, including those that service federal loans, offer discounts for loans paid via monthly autopay. With this, the payment will be automatically withdrawn from a borrower’s account each month, with no separate action required. For federal loans, the current discount is 0.25% for loans in active repayment (not in forbearance, deferment or grace periods). Enrolling in autopay is typically a simple process and provides an easy financial win. Check with your current or potential lender to confirm if this discount is available to you.
Similarly, making an extra payment, even a small one, can reduce the total interest paid over the life of a loan and potentially shorten the repayment period. Let’s look at an example:
- John has a $10,000 student loan at a 5% fixed-interest rate with a 10-year repayment term. His monthly payment is currently $106.07. If John pays an extra $10 each month, he will pay off the loan in 9 years instead of 10, saving roughly $300.00 in interest.
Even small, consistent extra payments go directly toward the principal balance, reducing the amount of interest that accrues over time.
Could Yrefy Be Right for You?
If you are seeking to explore refinancing options for delinquent or defaulted private student loans, the team at Yrefy is ready to help.
Yrefy is not a traditional lender. We consider more than just your credit score when determining eligibility. We’ve helped countless borrowers lower their monthly payments and save thousands. We have the testimonials to prove it.
Get in touch with us at (888) 358-3359, or fill out our contact form and a member of our team will reach out to you.
Next Steps: How to Evaluate Your Repayment Options
If you are considering taking a step toward a stronger financial future, it’s okay to start small. We’ve prepared a sample checklist below to help guide your direction:
- Understand your Loan: Review your loan documents and confirm whether your loan is federal or private. Confirm your interest rate and loan term, as this information may be needed later.
- Assess Your Income and Expenses: Create a monthly budget and separate payments into major categories such as rent or mortgage, food, debt payments, and savings. Use a free online calculator to check your debt-to-income ratio and track this percentage over time.
- Research Repayment and Refinance Plans: You’re already on the right track by reading this post! Research various lenders and review their offerings, including interest rates, fees, and loan terms to find a plan that works best.
- Consider Forgiveness and Relief Opportunities: For federal loans, visit StudentAid.gov to check eligibility for repayment plans or forgiveness programs. For private loans, speak with your lender to discuss relief or hardship options.
- Create a Long-Term Plan: Set realistic financial goals and review them annually, adjusting as your income, expenses, or career changes.
Remember: small actions can have a big impact. Consider taking just one of these steps today.
Note: Yrefy is not affiliated with the U.S. Department of Education and does not offer federal repayment programs. Information provided is for educational purposes only.
