For better or worse, getting a student loan isn’t as difficult as scheduling a one-time payment. There are several FAFSA loan repayment plans beyond the usual 10-year schedule. For example, if you are interested in an income-driven repayment (IDR) plan, you are spoiled for choice. When you complete the exit counseling when you leave school, you will be given the opportunity to choose a payment plan. If you don’t, you will be automatically placed on the standard 10-year payment plan. But you can always switch plans once you have started paying off your loans. Use this guide to help you decide which FAFSA loan repayment plan is right for you.
How to Pay FAFSA Loans
Basics of the FAFSA Student Loan Repayment Plan
Federal student loan repayment plans can be divided into two groups: income-related plans and traditional plans. Your payment terms will usually determine the best option for your situation. Do you want to pay off your student loans quickly to minimize interest costs, or lower your monthly payment to maximize affordability? Your student loan officer is the person who will help you change payment schedules if you wish.
Here are the FAFSA loan repayment plan packages you can choose from:
Traditional Repayment Plans
- Standard repayment plan
- Extended repayment plan
- Graduated repayment plan
Income-driven Repayment Plans
- Income-sensitive repayment (ISR)
- Income-contingent repayment (ICR)
- Income-based repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
Traditional FAFSA Loan Repayment Plans
Standard Repayment Plan
The standard payment plan (for non-consolidated loans) includes fixed payments over 10 years. Since this is one of the shortest payment terms on offer and the monthly installments do not change, this is how you save the most money in interest. The problem is that the monthly payments might be a bit higher than other plans.
The standard repayment plan is ideal for someone who wants to pay off their loans as quickly as possible, or for someone with a high income who doesn’t want to put up with even higher monthly payments on an income-driven plan. You should not use this plan if you are seeking Public Service Loan Forgiveness (PSLF) as this program offers loan forgiveness after 120 payments and in the standard plan you have paid off your loans by that time. Instead, choose an income-driven payment plan, which we describe below.
If you combine multiple federal loans into one loan and choose the standard FAFSA loan repayment plan, your repayment period is 10 to 30 years, depending on the total debt amount.
Advantage
- A relatively short payment term means you will pay less interest over time
- Fixed monthly payments help you with budgeting
Drawbacks
- Potentially higher monthly payments than other plans
- Because the payments are fixed, your credit bill can affect your finances if your income falls
Graduated Repayment Plan
The graduated payment plan includes lower initial payments that increase every two years. Similar to the standard plan, the repayment period is 10 years. It is best if you want to pay off your loans quickly but have a low starting income that’s expected to increase over the 10-year payback period.
We don’t recommend this plan for those looking for PSLF, and like the standard plan, the payback period can be as long as 30 years if you have consolidation loans.
Advantage
- With the 10-year repayment period, you can get out of student debt faster than other options
- Payments increase over time, making it easier for new graduates to repay student loans on entry wages
Drawbacks
- If your income doesn’t increase as expected, higher payments toward the end of the loan period can affect your finances
- Over time, you will pay a little more than the standard repayment plan, since the years you pay less will earn more interest
Extended Repayment Plan
If you have more than $30,000 in outstanding federal student loans, you may qualify for the Extended Repayment Plan, which allows you to extend the repayment period up to 25 years. Monthly payments can be fixed or tiered and are typically lower than standard or graduated repayment plans.
The extended FAFSA loan repayment plan may seem like a good option, but if you are looking for a lower payment over the longer term, it’s best to choose a plan based on income. This is because at 20 or 25 years they provide for the return of the balance. You will have to pay taxes on the amount lost, but you will still pay less overall than you would under the extended plan.
Advantages
- Lower monthly payments than standard and graduated repayment plans, making loans less expensive on a monthly basis
- Monthly payments can be fixed or staggered
Drawbacks
- Due to the longer payment period, you pay more interest compared to other plans
- No forgiveness option
- You must have more than $30,000 in outstanding federal student loans to qualify
Income-driven Repayment (IDR) Plans
There are 4 repayment plans that base your monthly payment on your family size and income. Under the plan, you will pay 10% to 20% of your discretionary income each month, as determined by the government. Some people may be eligible for $0 payments depending on their circumstances. Many IDR plans require you to meet certain income requirements, but others are available to anyone with eligible federal student loans.
The repayment period of these plans is 20 or 25 years. At the end of the term, any remaining loan balance is forgiven. The periods of deferment in case of economic difficulties and the periods in which you only had to pay 0 dollars are calculated on the entire repayment period.
These plans are good for low-income people with very large loan balances because they lower your payments. Loan forgiveness at the end of the repayment period is particularly helpful. With these plans, interest accrues faster because your payments may not cover rising interest rates. If you are seeking PSLF, you should choose an IDR plan that will keep your monthly repayment low while you work toward forgiveness.
It’s important to remember that IDR plans require you to recertify your income each year; otherwise, you could be dropped from the plan, causing your monthly payment to skyrocket. Below are the IDR options available to you.
Revised Pay As You Earn (REPAYE)
REPAYE sets your monthly repayment at 10 percent of your monthly Discretionary Income. Under this scheme, your repayment period is 20 years if all your loans were for undergraduate study. If the loans were for postgraduate studies, the repayment period increases to 25 years. For purposes of this program, discretionary income is the difference between your annual income and 150 percent of the poverty level for your family size and status.
The REPAYE plan is good for those with high balances and low income. It is also a solid plan for someone who doesn’t mind if their monthly repayment is higher than the standard payment plan, as there is no cap. Also, for those with very large loan balances, the government subsidizes a portion of the interest that accrues when your monthly bill isn’t high enough to cover the interest payment.
Advantages
- Any borrower with eligible federal loans can choose REPAYE
- Access loan forgiveness at the end of your pay period
- Monthly payments decrease as your income falls, keeping the payment affordable
Drawbacks
- If you don’t recertify your income and family size each year, you will be dropped from the plan, which could result in an increase in your payment.
- Depending on your income and family size, your monthly payment may be more than what you would pay under the standard payment plan.
- You may pay more interest due to the longer payment period
Pay As You Earn (PAYE)
The PAYE FAFSA loan repayment plan sets your monthly payment at 10 percent of your monthly discretionary income, but you never pay more than the standard repayment plan. With this plan, your payment period is 20 years. The discretionary income is defined in the same way as in the REPAYE program.
PAYE is good for those with large loan balances. Unlike REPAYE, the PAYE plan caps your monthly payment at the standard repayment plan level, even as your income increases. However, you must meet certain borrower requirements: you must have received your first federal student loan on or after October 1, 2007 and another loan on or after October 1, 2011.
Advantages
- Lower monthly payment than the standard repayment plan
- Your payment will never exceed what you would pay under the standard plan
- Access loan forgiveness at the end of your pay period
- Monthly payments decrease as your income falls, keeping the payment affordable
Drawbacks
- You can only qualify if your monthly payment is less than what you would pay under the standard repayment plan
- You must have student loans on or after certain dates to be eligible
- You may pay more interest due to the longer payment period
Income-Based Repayment (IBR)
The IBR plan has two sets of guidelines, and which one applies to you depends on when you originally applied for federal student loans.
If you first borrowed on or after July 1, 2014, your monthly payment is 10 percent of your discretionary income over a 20-year repayment period. Those who first borrowed before July 1, 2014 pay 15 percent of their discretionary earnings over 25 years. Discretionary income is defined as in the REPAYE and PAYE programs.
The IBR FAFSA loan repayment plan is good for new borrowers who have large balances and want a lower monthly payment. For those who don’t qualify as new borrowers, your 15 percent income payment means you are paying more than you would under the PAYE plan. However, higher monthly payments result in lower interest payments over time.
Advantages
- Your payment will never exceed what you would pay under the standard repayment plan
- Access loan forgiveness at the end of your pay period
- Monthly payments decrease as your income falls, keeping the payment affordable
Drawbacks
- Those who don’t qualify as new borrowers end up paying more per month over the longer term
- You may pay more interest due to the longer payment period
Income-Contingent Repayment (ICR)
The ICR plan is more expensive than other plans. It set your monthly payment to be 20 percent of your discretionary income or the amount you would pay on a 12-year fixed payment plan, whichever is lower.
ICR has a payback period of 25 years. It also uses a different definition of discretionary income than other IDR plans: Your discretionary income is the difference between your actual income and 100 percent of the poverty line for your state and family size.
The ICR is good for someone looking for a slightly lower payment and a slightly longer payment period than the standard repayment plan. This plan is the only one available to parent PLUS loan borrowers (after consolidating their PLUS loans into a direct loan).
Advantages
- Parent PLUS loan borrowers are eligible
- Access loan forgiveness at the end of your pay period
Drawbacks
- Depending on your income and family size, your monthly payment may be higher than what you would pay under the standard plan
- You may pay more interest due to the longer payment term
Income-sensitive Repayment (ISR)
The ISR FAFASA loan repayment plan is the only one that targets those who are repaying loans from the Federal Family Education Loan (FFEL) program. Under this plan, your payment period is 10 years. The monthly rate is set by your lender based on your annual income. It’s a less popular option and you can only qualify if your monthly payments are more than 20 percent of your income.
Advantages
- 10-year repayment period means you pay less interest over the life of the loan
- Monthly payments go down as your income goes down
Drawbacks
- Only low-income borrowers receiving credits from the FFEL program are eligible
- Monthly payments increase as your income increases
Which FAFSA Loan Repayment Plan is Right for me?
The FAFSA repayment plan you choose depends on several factors. First, check which plans you qualify for. The US Department of Education website details the eligibility requirements for each plan.
Your family size, income, and personal circumstances should also be considered. For example, if your income is low compared to your debt, an income plan may give you a more manageable monthly payment.
If you plan to get PSLF, the standard repayment plan is not a good option because you will pay off your loans before you can apply for forgiveness. The government’s student loan payment calculator, known as the Loan Simulator, can help you assess your situation and determine which plan is best for you.
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