Repayment Plans

Outcomes

While it may sound simple in theory, we know that paying back loans can be challenging and confusing. In this module we’ll help you gain a better understanding of:

Repayment options and requirements
How to change your repayment plan and implications
Income vs. non-income driven plans
Federal vs. private loans
Deferment vs. forbearance
What to do if you can’t pay

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Sometimes it can be hard to afford your monthly student loan payments, but if you have federal loans, you might be able to find relief by changing your repayment plan! To change your repayment plan:

Log into studentaid.gov
Check your balance, monthly payments, servicer, and repayment plan
Use Student Aid’s tool for finding the best repayment plan for your current situation
Change your repayment plan if needed

In some situations of extreme financial hardship, you may be approved to go a few months without making any loan payments! To learn more about the pros and cons of different repayment plans, consider exploring the rest of this module!

Key Terms

Deferment: an approved period of time where you do not make payments on your principal or interest
Forbearance: a period of time when your monthly loan payments are temporarily stopped or reduced. Interest will continue to be charged on your loans. Be aware that unpaid interest may be capitalized (added to your principal balance) at the end of your forbearance period
Income-Driven Repayment: monthly loan payments are based on income (as low as $0 for some low-income borrowers)
Discretionary Income: the difference between your income and 150 percent of the poverty line (based on your state and family size)
Capitalization: when unpaid interest is added to the principal balance of your loan and then you are charged interest on the new, larger amount
Default: failure to repay a loan outlined in the agreed promissory note. Most federal student loan default occurs when a payment isn’t made in more than 270 days. It can result in legal consequences and a loss of eligibility for additional federal student aid

I’m still struggling, what can I do?

Check out these modules:

What can I do if I still can’t make my monthly payment?

As soon as you realize you are unable to make your monthly payment, contact your loan servicer! Whether you have federal or private loans, your servicer will be able to offer you personalized guidance on your options. If you miss a loan payment and do not have another arrangement in place, you may be marked delinquent and after nine months your loans could default.

If you are struggling to make your payments, you have a few options:

An Income-Driven Repayment (IDR) plan
Deferment
Forbearance

Note: deferment and forbearance are short-term solutions for when you cannot pay or have higher than normal expenses (examples: car accident, moving, medical issues).

A reduced payment (as low as $0 per month) through an IDR plan is a longer-term solution if you have a limited income as you are moving closer to the end of your repayment period and interest is not capitalized.

If your servicer offers you a deferment, you will have a period of time where you do not have to make a monthly payment toward your principal or interest. For federal loans, the government may pay the interest during this period for you. In other cases, the interest accrued during deferment may be capitalized (added to your principal).

If you don’t qualify for deferment, you may be able to receive forbearance. In this case, you may be able to pay a lower rate or stop making payments for a year. During this period, you will still need to pay the interest accrued on your loan or it will likely be capitalized. In certain specific situations, your lender must grant you a forbearance.

What repayment plans are available?

For federal loans, you will automatically be enrolled in the Standard Repayment Plan. While this option has the highest monthly payments of all options, this means that you will pay the loan off faster and not have to pay as much interest. There are also Graduated, Extended, Income-Driven, and Income Sensitive plans.

Which option is right for you? Below we have included a bit of information on each plan, but we also recommend you check out the Department of Education’s Loan Simulator for more personalized recommendations.

Payment Plan	Characteristics	Pros	Cons
Standard	Default repayment plan Repayment generally 10 years or less (longer if consolidated) Payments are fixed (example: $50/month)	Pay off your loans faster Pay less total interest Cheapest option in the long-term	Higher monthly payments
Graduated	Monthly payments start lower than the Standard plan and increase every two years Payments are always high enough to cover interest accrued Generally paid off in 10 years or less (longer if consolidated)	Good for those who are struggling to meet standard payments now, but expect their income to increase in the future Avoids capitalization (having unpaid interest added to your principal balance)	Higher payments in the future (can be a problem if your income does not increase as expected) Higher total cost than the Standard Plan because you are paying down your principal slowly in the beginning
Extended	For those with more than $30,000 in loans (principal and interest) Lower monthly payments than the Standard Plan Payback period of up to 25 years Fixed or graduated payments	Lower monthly payments than the Standard Plan	Longer repayment period Greater total cost due to paying more interest over the loan’s life
Income-Driven	Multiple different plans with some similarities Monthly payments are limited to a certain percent of your household’s discretionary income Debt forgiveness after a fixed number of years	Lower monthly payments (as little as $0) A good alternative to deferments or forbearances if you have little or no income Loan forgiveness options Best option for those seeking Public Service Loan Forgiveness (PSLF)	Will likely end up paying more interest than in the Standard Plan
Income Sensitive	Only available for those who took out loans before June 2010 through the Federal family Education Loan (FFEL) program Monthly payments are tied to annual income Repayment period of up to 10 years	Similar benefits to Income Driven Plans	Not available unless you have FFEL loans from before 2010 Will likely pay more interest than in the Standard Plan
Repayment Plan	Characteristics	Pros	Cons

If you are interested in an Income-Driven Repayment (IDR) plan and have Direct Loans, you have a few options to choose from:

How do I start repayment?

The first step to repayment is understanding the loan(s) you have, the servicer(s) you will be working with, and what repayment plan(s) you currently are on. For federal loans, all of this information can be found by logging into studentaid.gov and then contacting your servicer.

For private loans, you will want to contact your lender (and servicer, if that is a different organization) to learn more about your current repayment plan and any alternatives.

If you do not know who your lender is, you can check your credit report here.