Student loan repayment: Tips and strategies

Student loan repayment: Tips and strategies


Federal student loan payments resumed this month after a three-year hiatus. As you prepare to make your student loan payments, whether it’s for the first time after leaving school or after the pandemic pause, it’s important to be prepared.

When you graduate with federal student loans, you get a six-month grace period before you’ll have to start making payments. One of the most important decisions you’ll make is which repayment plan to enter. There are seven different pay plans, which include the standard, graduated, and extended plans, as well as a handful of income-driven plans.

Each of the different repayment plans has different benefits and is right for a certain type of borrower. The plan you choose will impact how long it takes to repay your loans, as well as how much you’ll pay in interest along the way.

Read more: Financial planning for young adults

Choosing the right payment plan for your student loans

The federal government offers seven different student loan repayment plans.1 Some are available to all borrowers, while others have certain eligibility requirements.

Standard repayment plan

The standard repayment plan is available to all borrowers and is the plan that all borrowers are automatically signed up for if they don’t opt for a different option. Under this plan, you’ll make fixed monthly payments and are guaranteed to pay off your loans within years (or between 10 and 30 years for consolidated loans).

This plan has several benefits. It allows borrowers to pay off their loans more quickly than any other plan and also results in the lowest amount of interest paid. This plan is suitable for borrowers with a steady income right out of college.

Graduated repayment plan

The graduated repayment plan, like the standard plan, is available to all borrowers. This plan also ensures a borrower can repay their loans within 10 years. However, rather than making fixed payments, you’ll pay lower payments when you first leave school. Then, your payments will gradually increase over the next ten years.

This plan is a good option for borrowers who want to repay their loans quickly, who will have a relatively low income when they first leave school, and who expect their income to increase over the next decade.

Extended repayment plan

The extended repayment plan is available to Direct Loan borrowers with at least $30,000 of loans. Under this plan, you can choose between either fixed or graduated payments and pay off your full balance over 25 years.

This plan may be suited for someone who has a large loan amount and won’t be able to repay it in just 10 years. This plan can give you additional time to repay your loans, but you’ll also pay more in interest during that time.

Income-driven repayment (IDR) plans

There are a handful of income-driven repayment plans that allow borrowers to make a monthly payment that’s appropriate for their monthly income. Payments under these plans are limited to ensure payments remain affordable, even for borrowers who may have a low income.

There are four income-driven repayment plans to choose from:

  • Saving on a Valuable Education (SAVE) Plan: This plan, formerly the REPAYE plan, is available to all borrowers. It limits monthly payments to 10% of a borrower’s discretionary income. Borrowers are eligible for loan forgiveness for any remaining loan amount after 20 years for undergraduate loans or 25 years for graduate loans.
  • Pay As You Earn Repayment Plan (PAYE): Under this plan, borrowers will pay 10% of their discretionary income each month, but not more than they would have paid under the standard repayment plan. Borrowers are eligible for loan forgiveness for any remaining loan amount after 20 years.
  • Income-Based Repayment Plan (IBR): This plan is available to borrowers with a high debt-to-income ratio. Payments are limited to either 10% or 15% of income, but not more than borrowers would have paid under the standard repayment plan. Borrowers are eligible for loan forgiveness for any remaining loan amount after 20 years for undergraduate loans or 25 years for graduate loans.
  • Income-Contingent Repayment Plan (ICR): This plan limits a borrower’s payments to the lesser of 20% of the discretionary income or the amount they would have paid on a fixed 12-year repayment plan. Borrowers are eligible for loan forgiveness for any remaining loan amount after 25 years.

Prepaying loans to accelerate repayment

You can prepay your federal loans to pay off your loans earlier and to save money on interest. First, you can start paying on your federal loans while you’re in school to help reduce the amount of debt you have when you leave school.

Once you leave school and begin repayment, you can make additional payments on your loans to help you pay them off early. Any additional amount you pay — whether it be an extra payment or an additional amount on your regular payments — will be applied to outstanding interest first and then to your principal balance.

Deferment and forbearance

If you hit any roadblocks during your repayment journey or decide to return to school, you may need to pause your payments temporarily. There are two ways to do that: deferment and forbearance.

  • Deferment allows you to pause your payments due to certain circumstances. And for subsidized loans (though not unsubsidized loans), your interest will stop accruing, too. You can request deferment for a number of reasons, including cancer treatment, economic hardship, graduate fellowship, returning to school, military service, rehabilitation, and unemployment.2
  • Forbearance also allows you to pause your payments due to certain circumstances, but it doesn’t allow you to pause your interest. You can request forbearance for reasons such as financial difficulties, medical expenses, a change in employment, AmeriCorps service, Department of Defense repayment program enrollment, medical or dental internship or residency, National Guard Duty, or student loan payments that make up more than 20% of your monthly income.3

Keep in mind that deferment and forbearance have some major downsides. They push back the date by which you’ll finally pay off your loans. And in many cases, you’ll continue to accrue interest. Before requesting deferment or forbearance, consider signing up an income-driven repayment plan to reduce your payment during a financial hardship.

Read more: How to pay off debt

Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) Program helps public servants pay off their student loans more quickly. Borrowers who work for a government or non-profit organization can have their loans forgiven after making 120 qualifying payments.

If you plan to pursue PSLF, make sure you’re on the right payment plan. If you choose a ten-year repayment plan, you'll have paid off your full loan balance by the time you would be eligible for forgiveness. To qualify for PSLF, you must have one of the following repayment plans:

  • Saving on a Valuable Education Plan (SAVE)
  • Pay As You Earn Repayment Plan (PAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICF)

Additionally, you can technically qualify for PSLF with a standard repayment plan, but it’s not the ideal plan for most borrowers since you will have paid off your loans after ten years.

Refinancing private student loans

Private student loans are an option available to students either instead of or in addition to federal loans. Private loans come with some disadvantages, including higher interest rates and fewer options for repayment. However, you have the option to refinance your loans later on to get more favorable terms, especially if your credit has improved.

Private student loans and income-driven repayment

Unlike federal loans, private student loans generally don’t offer income-driven repayment. Your monthly payments are entirely dependent on your loan amount, interest rate, and repayment term. Unfortunately, this means that low-income borrowers may have a difficult time repaying their loans.

Private loans do have some options for relief. For example, many private loan lenders offer forbearance as the federal government does, but it’s not a guarantee. Additionally, forbearance is only a short-term solution.

Refinancing private student loans for lower payments

Many people are able to save money by refinancing their private student loans. When you apply for student loans, your interest rate is based on your credit score. And unfortunately, many young people don’t have the most stellar credit.

But once you’re out of school and have had the chance to improve your credit score, you can refinance your loans with a better interest rate. If your credit score still isn’t ideal, you may also refinance with the help of a cosigner.

Refinancing has other benefits, too. For example, if your monthly payments are too high, you can refinance with a longer payment term to stretch your payments out over a longer period.

Calculating potential savings through refinancing

If you have private student loans, you may be wondering just how much refinancing could save you. While refinancing can be cost-effective, it depends entirely on your situation.

First, you can get an idea of how much you can save by prequalifying for a refinance loan. Prequalification is a process that allows you to see whether you qualify for a loan, as well as what interest rate you qualify for, without harming your credit score.

If you still aren’t sure whether refinancing is right for you, consider using an online student loan refinance calculator — there are many of these available online — to help you run the numbers.

Refinancing federal student loans

Just like you can refinance your private student loans, you can also refinance your federal loans with private lenders. Depending on your situation, you may be able to get a lower interest rate or lower your monthly payment.

However, refinancing your federal loans has some major downsides. First, federal loans have low interest rates that aren’t based on your credit, meaning many people actually won’t qualify for better interest rates.

Another thing to consider is that, as we mentioned, private loans don’t offer income-driven repayment plans. This lack of flexibility makes private loans less attractive. Additionally, loan forgiveness programs like PSLF aren’t available to private loan borrowers.

Federal loans simply come with flexibility that isn’t available for private loans. Take COVID as an example. For more than three years, federal loan borrowers weren’t required to make payments on their federal loans, nor did those loans accrue interest. Private borrowers, on the other hand, continued to have interest accrue on their loans and had to make payments the entire time.

Tips and resources

Student loans are common, and it’s important to be prepared. New research shows that many households are making $1,000 payments starting in October.

The Department of Education offers a loan simulator through its student aid website.4 You can see which payment plan is best for you based on your goals. For example, you can see which plan will offer you the lowest monthly payment versus which will help you pay off your loans the fastest. You can also see whether consolidating your federal loans would be beneficial.

Even if you want to pay your loans off aggressively and become debt-free as soon as possible, you must still be realistic. Aim for a monthly payment that’s affordable based on your current budget. You can always pay more than the minimum payment to pay your loans off more quickly.

The federal government offers a variety of loan repayment options to choose from so that each borrower can find the plan that works for them. Whether your priority is paying off your loans quickly or having low monthly payments, there’s a plan that can help with your goals.

Finally, tread carefully before refinancing your federal loans. While refinancing can be hugely beneficial for private loans, there are significant downsides to refinancing federal loans, which makes it the wrong choice for many borrowers.



1 Federal Student Aid, “Choose the federal student loan repayment plan that’s best for you.”

2 Federal Student Aid, “Student loan deferment allows you to temporarily stop making payments.”

3 Federal Student Aid, “Student loan forbearance allows you to temporarily stop making payments.”

4 Federal Student Aid, “See Your Federal Student Loan Repayment Options with Loan Simulator.”


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