Loan Repayment Options

There are four main repayment plans for Federal education loans, consisting of Standard Repayment and six alternatives. Each of the alternatives has a lower monthly payment than Standard Repayment, but this extends the term of the loan and increases the total amount of interest repaid over the lifetime of the loan.

The repayment plans are as follows:  

 

Repayment Plan Eligible Loans Monthly Payment and Time Frame Quick Comparison
Standard Repayment Plan
  • Direct Subsidized/Unsubsidized
  • Subsidized/Unsubsidized Federal Stafford Loans  
  • all PLUS loans
  • Payments are fixed  amount of at least $50 per month

Up to 10 years

You'll pay less interest for your loan over time under this plan than you would under other plans.
Graduated Repayment Plan
  • Direct Subsidized/Unsubsidized
  • Subsidized/Unsubsidized Federal Stafford Loans 
  • all PLUS loans
  • Payments are lower at first and then increase, usually every two years. 

Up to ten years

You'll pay more for your loan over time under the 10-year standard plan.
Extended Repayment Plan
  • Direct Subsidized/Unsubsidized 
  • Subsidized/Unsubsidized Federal Stafford Loans 
  • all PLUS loans
  • Payments may be fixed or graduated.

Up to 25 years

  • Your monthly payments would be lower than the 10-year standard plan. 
  • If you are a 
    • Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans. 
    • FFEL borrower, you must have more than $30,000 in outstanding FFEL Program loans. 

For example, if you have $35,000 in outstanding FFEL Program loans, and $10,000 in Direct Loans, you can use the extended repayment plan for your FFEL Program loans, but not for your Direct Loans. 

  • For both programs, you must also be a "new borrower" as of Oct. 7, 1998. 
  • You'll pay more for your loan over time than under the 10-year standard plan.
Income-Based Repayment (IBR)
  • Direct Subsidized/Unsubsidized 
  • Subsidized/Unsubsidized Federal Stafford Loans 
  • all PLUS loans 
  • Consolidation Loans that do not include Direct of FFEL PLUS loans made to parents
  • Your maximum monthly payments will be 15% of discretionary income, the difference between your AGI and 150% of the poverty guideline for your family size and state of residence.
  • Your payments change as your income changes.  

Up to 25 years

  • You must have a partial financial hardship. 
  • Your monthly payments will be lower than payments under the 10-year standard plan. 
  • You'll pay more for your loan over time than you would under the 10-year standard plan. 
  • If you have not repaid your loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven. 
  • You may have to pay income tax on any amount that is forgiven.
Pay As You Earn Repayment Plan
  • Direct Subsidized/Unsubsidized 
  • Subsidized/Unsubsidized Federal Stafford Loans 
  • Direct PLUS Loans made to students 
  • Direct Consolidation Loans that do not include Direct or FFEL PLUS loans made out to parents
  • Your maximum monthly payments will be 10% of discretionary income, the difference between your AGI and 150% of the poverty guideline for your family size and state of residence. 
  • Your payments change as your income changes.

Up to 20 years

 

  • You must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. 
  • You must have a partial financial hardship. 
  • Your monthly payments will be lower than payments under the 10-year standard plan. 
  • You'll pay more for your loan over time than you would under the 10-year standard plan. 
  • If you have not repaid your loan in full after you made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven. 
  • You may have to pay income tax on any amount that is forgiven.
Income-Contingent Repayment Plan
  • Direct Subsidized/Unsubsidized
  • PLUS loans made to students
  • Direct Consolidation Loans
  • Payments are calculated each year and are based on your AGI, family size, and the total amount of your Direct Loans. 
  • Your payments change as your income changes. 

Up to 25 years

  • You'll pay more for your loan over time than under the 10-year standard plan. 
  • If you do not repay your loan after making the equivalent of 25 years of qualifying monthly payments, the unpaid portion will be forgiven. 
  • You may have to pay income tax on the amount that is forgiven.
Income-Sensitive Repayment Plan
  • Subsidized/Unsubsidized Federal Stafford Loans 
  • FFEL PLUS loans 
  • FFEL Consolidation Loans
  • Your monthly payment is based on annual income. 
  • Your payments change as your income changes. 

up to 10 years

  • You'll pay more for your loan over time than you would under the 10-year standard plan. 
  • Each lender's formula for determining the monthly payment amount under this plan can vary.

 

All Federal education loans allow prepayment. For loans that are not in default, any excess payment is applied first to interest and then to principal. However, if the additional payment is greater than one monthly installment, you must include a note with the payment telling the processor whether you want your prepayment to be treated as a reduction in the principal. Otherwise, the government will treat it as though you paid your next payment(s) early, and will delay your next payment due date as appropriate. (It is best to tell them to treat it as a reduction to principal, since this will reduce the amount of interest you will pay over the lifetime of the loan.)

Due to the way the income contingent repayment plan treats interest, it is not advisable to prepay a loan in the income contingent repayment plan.

If you want to switch from one plan to another, you can do so once per year, so long as the maximum loan term for the new plan is longer than the amount of time your loans have already been in repayment. (In other words, if you are in year 26 of a 30-year extended repayment plan, you cannot switch to the income contingent repayment plan and have the remaining balance written off.)

FinAid offers several calculators for evaluating the tradeoffs of different repayment plans.  

  • The Loan Payment Calculator may be used to calculate what your monthly payments would be under the standard and extended repayment plans.
  • The Loan Comparison Calculator is like the loan payment calculator, but allows you to compare three loans side by side.
  • The Income Contingent Repayment Calculator may be used to calculate an estimate of what your monthly payments would be under income contingent repayment plans, and compares the total payments with the standard and extended repayment plans.
  • The Undergraduate Master's and Doctoral student loan advisor calculators provide an estimate of the debt the student can reasonably afford, given the expected starting salary for their field.
  • The Parent Loan Advisor provides parents with an estimate of the amount of educational debt they can afford for their children's education, given their current salary and other debt obligations.
  • The Cost of Interest Capitalization calculates the additional cost over the lifetime of a loan if a student capitalizes the interest of an unsubsidized Stafford loan during the in-school period.
  • There are also other loan calculators in the Calculators section of FinAid, including a Loan Analyzer that does a detailed comparison of the financial impact of various loan features, including loan fees, interest rates, repayment terms, interest capitalization, and prompt payment incentives. 
Updated 6/30/2015 - Content Author mnash