it’s time to start paying back your student loans, you will likely have a variety of repayment options, from a standard ten-year plan, to
extended plans that base your payments on how much you earn. Learn about
the plans available for each of your loans and choose the options that
allow you to get out of debt as fast as possible. Many experts say that
your student loan payments shouldn’t exceed 8% to 10% of your gross
monthly income. You may want to use that as a rough guide, keeping in
mind that if you extend the life of your loans, you’ll significantly
increase the amount you pay in the long run.
To compare repayment plans, you can use the Repay Student Debt Calculator offered by the Consumer Financial Protection Bureau (CFPB).
Whether you have federal student loans, private loans, or both, this
calculator is a great place to start evaluating your repayment options. If your lender offers an
electronic payment option, sign up for it if you can. Your payments
will never be late, and you may also qualify for a reduced interest
The direct loan program offers five different repayment plans:
- Standard Repayment – The borrower will pay a
fix amount each month for the life of the loan. The payment would be
determined by your borrowed amount, interest rate, and term of the loan.
- Graduated Repayment – The borrower makes payments lower than the standard repayment plan, but payments increase every two years.
- Income Contingent (ICR) – In this plan, the
borrower would make payments based on their income, family size, loan
balance, and interest rate. Borrowers in the ICR can have a payment as
low as $0.00/mo.
- Income Based (IBR) – This plan bases the
borrower's payment strictly on their income and family size. The balance
of the loan and interest rate are not used in calculating the monthly
payment. The borrower would be responsible to pay 15% of their
discretionary income to their federal student loans. Borrowers in the
IBR can have a payment as low as $0.00/mo.
- Pay As You Earn (PAYE) – This plan usually
has the lowest monthly payment and is also based on your income but
uses 10% of your discretionary income as a payment instead of the 15%
used in IBR. Qualifying for the PAYE repayment plan is more difficult
than the others. Borrowers in the PAYE can have a payment as low as
- Saving on a Valuable Education (SAVE) formerly the REPAYE plan – The SAVE Plan replaced the Revised Pay As You Earn (REPAYE) Plan. Borrowers on the REPAYE Plan automatically get the benefits of the new SAVE Plan. The SAVE Plan eliminates 100% of remaining monthly interest for both subsidized and unsubsidized loans after you make a scheduled payment. This means that if you make your monthly payment, your loan balance won’t grow due to unpaid interest that accrued since your last payment. Like other IDR plans, the SAVE Plan calculates your monthly payment amount based on your income and family size. The SAVE Plan decreases monthly payments by increasing the income exemption from 150% to 225% of the poverty line.