Income-Driven Repayment Plans
One of the most popular options for federal student loan repayment is an income-driven repayment plan. These plans take into account your income and family size to determine your monthly payment amount. There are four main income-driven repayment plans:
Standard Repayment Plan
- Income-Based Repayment (IBR) Plan: This plan caps your monthly payment at a percentage of your discretionary income, typically 10% to 15%. After 20 or 25 years of qualifying payments, any remaining balance may be forgiven.
- Pay As You Earn (PAYE) Plan: This plan also caps your monthly payment at a percentage of your discretionary income, but the cap is generally lower than with the IBR plan. After 20 years of qualifying payments, any remaining balance may be forgiven.
- Revised Pay As You Earn (REPAYE) Plan: Similar to PAYE, this plan caps your monthly payment at a percentage of your discretionary income. However, the repayment period is extended to 25 years for undergraduate loans and 30 years for graduate loans.
- Income-Contingent Repayment (ICR) Plan: This plan calculates your monthly payment based on either 20% of your discretionary income or what you would pay on a fixed 12-year repayment plan, adjusted for your income. After 25 years of qualifying payments, any remaining balance may be forgiven.
If you prefer a fixed monthly payment that will pay off your loans in a shorter period of time, the standard repayment plan may be suitable for you. Under this plan, your monthly payments will be a fixed amount for up to 10 years, depending on the total amount of your loans. While the monthly payments may be higher compared to income-driven plans, you will pay off your loans faster and save on interest in the long run.Graduated Repayment Plan
The graduated repayment plan is another option for federal student loan repayment. This plan starts with lower monthly payments that increase every two years. The idea behind this plan is that your income will increase over time, making it easier for you to afford higher payments in the future. The repayment period is typically 10 years, but it can be extended up to 30 years if you consolidate your loans.Extended Repayment Plan
If you have a large amount of federal student loan debt, the extended repayment plan may be worth considering. This plan allows you to extend your repayment period up to 25 years, resulting in lower monthly payments. However, keep in mind that while your monthly payments may be more manageable, you will end up paying more interest over the life of the loan.