Janice Lozano
There are several repayment options available for paying off student loans, and the best choice depends on your financial goals and what you can afford. The Standard Repayment Plan is best for borrowers who want to pay off their loans quickly and minimise interest costs. Another option is the Graduated Repayment Plan, which allows you to pay off your loans in the same amount of time as the Standard Plan but with lower monthly payments that increase every two years. The Extended Repayment Plan offers lower starting payments that may rise over time, but these payments typically do not qualify for loan cancellation through Income-Driven Repayment (IDR) or Public Service Loan Forgiveness (PSLF). IDR plans are a good choice for those seeking lower monthly payments, and they may be the only option available to those who cannot afford the Standard Plan.
Payment plans to pay off student loans
| Characteristics | Values |
|---|---|
| Standard repayment plan | Fixed monthly payments, fastest payoff, lowest total interest paid compared to plans with longer repayment terms. |
| Income-driven repayment (IDR) plans | Payment based on income, forgiveness after 20-25 years, monthly payments may be as low as $0. |
| Graduated repayment plan | Lower starting payments that may rise over time, monthly payments start low and increase every two years. |
| Extended repayment plan | Lower starting payments that may rise over time, no forgiveness. |
| Rehabilitation | After 9 months of reasonable payments, the loan will be in good standing and the borrower will regain eligibility for federal student aid. |
| Consolidation | Faster than rehabilitation, helps if the borrower wants to enroll in school soon, but the default will stay on the credit report. |
| PAYE | Monthly payments set at a percentage of discretionary income but never exceed what would be paid on a Standard Repayment Plan. |
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What You'll Learn
Standard repayment plan
A standard repayment plan is a student loan repayment option that offers fixed monthly payments and the fastest route to paying off your debt. This plan is best suited for borrowers who can manage the payments and want to minimise the interest costs over time. Typically, those who opt for this repayment method will have debt that is equal to or less than their income.
The standard repayment plan has a term of 10 years for loans taken out before July 1, 2026. For newer loans, the term can be 10, 15, 20, or 25 years, depending on the amount owed. Borrowers are expected to make fixed monthly payments, including interest, with a minimum payment of $50 per month.
One of the benefits of the standard repayment plan is that it accrues the lowest total interest compared to plans with longer repayment terms. However, the drawback is that if you owe a large sum, your monthly payments could become unaffordable. This plan does not offer built-in flexibility if your income drops, but you may be able to negotiate a deferment or forbearance with your student loan servicer.
All borrowers are automatically enrolled in the standard repayment plan after their six-month grace period ends unless they actively choose another plan. If you are pursuing IDR (Income-Driven Repayment) student loan forgiveness or Public Service Loan Forgiveness, you may want to consider an IDR plan instead. These plans base your monthly payments on your income and offer forgiveness after 20 to 25 years.
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Income-driven repayment (IDR) plans
There are four existing types of IDR plans, with a fifth set to be introduced in 2026. The specific plans include ICR, PAYE, REPAYE/SAVE, and the new plan, which is known as the Repayment Assistance Plan (RAP). IDR plans are also beneficial if you are pursuing student loan forgiveness or Public Service Loan Forgiveness, as they can help maximise the amount forgiven.
To enrol in an IDR plan, you must apply through your student loan servicer or by visiting studentaid.gov/IDR. It's important to note that because IDR plans extend the repayment term, you may end up paying more over time due to accumulating interest. However, IDR plans can be a good option if you're concerned about debt aversion or under-investment in higher education due to low income.
The SAVE plan, which was introduced in August 2023, is worth mentioning. It automatically enrolled nearly 8 million borrowers before it was closed to new enrollment in July 2024 due to litigation. As a result, SAVE borrowers have been in interest-free forbearance, resulting in significant costs to taxpayers.
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Graduated repayment plans
A graduated repayment plan is a payment option for federal loans that starts with low monthly payments and gradually increases over time. This repayment plan is designed to give borrowers a low monthly payment for their first year in repayment, which then rises incrementally every two years. The graduated repayment plan is best suited for those who want to take advantage of a low monthly payment at the beginning of their loan repayment journey. However, it is important to note that this plan does not offer forgiveness of the remaining balance after the repayment period, unlike income-driven repayment (IDR) plans.
The graduated repayment plan is not a long-term option for student loan repayment. In fact, starting from July 1, 2026, with the passage of the One Big Beautiful Bill, new borrowers will no longer be able to access graduated or extended repayment plans. This means that borrowers who opt for the graduated repayment plan will need to switch to a different plan after 2026. The Department of Education's Loan Simulator can help determine if the graduated repayment plan is a suitable option for an individual's student loans.
The graduated repayment plan differs for consolidated and non-consolidated student loans. Consolidating loans may require a change in the repayment plan. The repayment period for the graduated repayment plan can stretch up to 30 years, with payments gradually increasing over time. This is a much longer repayment term compared to the standard repayment plan, which typically lasts for 10 years.
To change from an existing payment plan to the graduated repayment plan, individuals can contact their loan servicer or fill out and submit the repayment plan request form, which expires on April 30, 2026. It is important to carefully consider the pros and cons of the graduated repayment plan, as well as one's long-term income trajectory, before enrolling in this plan.
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Extended repayment plans
An extended repayment plan is a good option for those who want to lower their monthly payments on federal student loans. This plan extends the time you have to pay back your student loan from 10 years up to 25 years. If you have more than $30,000 in federal student loans, you may be eligible for this plan.
While extending the term of your loan will make your monthly payments smaller, you will pay more interest over time. However, you can always pay more than the amount due each month, and making extra payments will reduce the total interest you pay over the life of the loan.
There are some restrictions to enrolling in an Extended Repayment Plan. For example, this plan does not qualify for loan forgiveness programs. As an alternative, an income-driven repayment (IDR) plan may offer less restrictive options to lower your monthly payments. IDR plans extend your repayment term to 20 or 25 years, and any remaining debt is forgiven at the end of the term.
If you are having trouble repaying your federal student loans, you may be eligible for a lower monthly payment, possibly as low as $0, through an IDR plan. These plans offer repayment flexibility based on your income (or lack thereof). To get into an IDR plan, you must apply through your student loan servicer or by going to studentaid.gov/IDR.
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Rehabilitation and consolidation
Student loan rehabilitation is a method to get federal student loans out of default. Borrowers can make their loans eligible again by making nine on-time payments over a 10-month period. This process can take a borrower out of default more quickly than loan consolidation. It also removes the default from their credit report, improving their credit score. However, the series of late payments that led to the default will remain on the report.
Rehabilitated federal direct loans are subject to collection costs, but these fees are not capitalized or added to the loan balance. Loan consolidation, on the other hand, can require additional collection costs. Borrowers can consolidate out of default by agreeing to repay their new loan under an income-driven plan. However, unlike rehabilitation, consolidation will not remove the default from the borrower's credit report.
Starting July 1, 2027, borrowers will be allowed to rehabilitate up to two times. If a borrower defaults for a third time, their primary remaining options will be consolidation or paying off their debt in full.
Income-driven repayment (IDR) plans are a category of repayment plans that tie monthly bills to a portion of the borrower's income and extend their time in repayment to 20 or 25 years. When the term is over, any remaining debt gets forgiven. IDR is best for borrowers who need lower monthly payments. If a borrower's income changes or they lose their job, they can adjust their monthly IDR bills and even qualify for $0 payments.
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Frequently asked questions
An IDR plan is a category of repayment plans that tie your monthly bill to a portion of your income and extend your time to repay the loan. IDR plans can reduce your monthly payment to as low as $0.
The standard repayment plan is best for borrowers who want to pay off their loans quickly and minimise interest costs. It involves fixed monthly payments and is designed to pay off the loan within 10 years.
The graduated repayment plan allows you to pay off your loans in the same amount of time as the standard plan but has monthly payments that start low and increase every two years.
