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Why You Should Change Your Student Loan Repayment Plan

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In a Nutshell

After graduation, you're automatically placed on a 10-year standard monthly payment plan. You can choose to remain on this plan but you don't have to. There are a number of federal student loan repayment plans that are more affordable and make you eligible for loan forgiveness down the road.

Written by Attorney Tori Bramble
Updated May 15, 2023

If you're having trouble making your monthly payments on your federal student loans, don't be discouraged. As a borrower, you can change your monthly loan payment. Here, we'll explain all available repayment plan options. Knowledge is power. You want to be in the know before contacting your loan servicer asking to switch your payment plan.

Understand Your Student Loan Repayment Plan Options

There are many different kinds of student loan payment plans to consider. It's crucial to pick the plan that's right for you. You should look at your income and set up a realistic monthly budget so you'll know what you can afford to pay. You can find loan payment options for a new loan or existing loans on thefederal student aid website, studentaid.gov.

After graduation, you're automatically placed on a 10-year standard monthly payment plan. You can choose to remain on this plan and can change at any time. Before doing so, most people look at what they can afford to pay. You want to avoid committing to a payment amount you can't afford.

Before deciding on a plan, it's important to understand the different types of payment options. You want to know your choices before requesting a payment change with your lender.

Let's move on to the two types of repayment plans. There's the standard repayment plan which generally has higher monthly payments. Then there are income-driven repayment plans (IDR). If you're struggling with your student loan payments or your payment amount doesn't work for your current situation, these may be right for you:

Standard, Graduated, and Extended Repayment Plans:

Standard Repayment Plan: 

This is a 10-year plan with a fixed monthly payment amount. If you don't choose another payment plan or complete your annual recertification (if you're on an income-based plan), your Department of Education direct loan servicer puts you on this plan. For many people just beginning their careers, the standard plan can be hard to handle because the payments are generally high.

There are two types of standard plan payment choices:

  • Graduated Repayment Plan: On this plan, you'll begin with low student loan payments that increase every two years. If you choose this plan, stay on it and make all payments on time, you'll pay off your loan in 10 years. If you make any extra payments, you'll pay off your loan faster. It's important to consider that as your annual income goes up, these loan payments should become easier to handle.

  • Extended Repayment Plan: The extended repayment plan is for people owing more than $30,000 in loans. This plan offers an extended 25-year repayment period. The main benefit of this plan is lower monthly payments that are manageable for most people. The downside is most individuals will pay back more interest on the loan because of the lower payment.

 Income-Driven Repayment Plans (IDR):

  • Income-based repayment plan (IBR): If you choose this plan, you'll pay 10-15% of your discretionary income towards your direct loans. Discretionary income is the difference between your annual income and 150% of the federal poverty guidelines for your family size. You'll pay more in interest on this plan because there's a longer payment term. Also, if your income increases, your payments will too.

  • Income contingent repayment plan (ICR): On income-contingent repayment plans, your payment each month is limited to 10-15% of your discretionary income for 25 years or what you'd have to pay on a fixed payment plan for 12 years.

  • Pay As You Earn (PAYE): On the PAYE plan, your payment is set at 10% of discretionary income. This plan can work for you if you are on a tight budget because of other financial commitments. If you stick to this plan, the Department of Education will cancel your loans after 20 years of consistent scheduled payments. This is a fantastic benefit of the PAYE plan. Keep in mind that eligibility for the PAYE plan is limited. Borrowers can qualify for the PAYE plan if their monthly subsidized direct loan payment is less than their payment would be under the standard repayment plan.

  • Revised Pay As You Earn (REPAYE): Like the income-based repayment plan (IBR), if you choose this plan, your payment every month is capped at 10% of your discretionary income based on your family size and yearly income.

  • Income-based repayment plan (IBR): On the IBR plan, the government will stretch out your repayment term to 20 or 25 years. Your loan payments are capped at a percentage of your income. For example, if your annual income increases from $60,000 to $75,000, your payments will increase as well.

  • Income-based repayment plan (IBR): This plan is only for Federal Family Education Loan (FFEL) borrowers. FFEL student loans are federally backed loans funded by private lenders. With this payment option, you'll pay a monthly amount based on your adjusted gross income for 10 years. Your IRS income tax returns will be used to determine your monthly payments.

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Choosing the Right Repayment Plan for You

Now that you know your monthly payment choices and have looked at the pros and cons of each option, you're ready to pick the right plan for you based on your individual financial situation. If you want more information about your loans, you can get specific information about all of your federal student loans on the National Student Loan Data System. This will help you make sure you have complete and accurate details about all of your subsidized and unsubsidized student loans.

For those of you opting for a public service career, usually, thepublic service loan forgiveness (PSLF) plan is the best repayment option.

Public Service Loan Forgiveness is a federal loan program that was created to encourage students to go into traditionally lower-paying careers such as police officers, teachers, nursing, and military and government service jobs, nursing, public interest law, and the military.

On the PSLF payment plan, after making 120 qualifying payments while working for a government agency or a nonprofit, your loan balance is forgiven. You cannot get PSLF unless you can start paying back your loans on an income-driven repayment plan. These repayment terms let you make a lower income-based monthly payment because most public service work is not highly paid.

For people who don't work in public service, income-driven plans are usually the best choice because they're made to be affordable. Based on your budget, your loan servicer will set a minimum payment amount based on your discretionary income. Having a minimum payment is a safety net because, just like a credit card, even if you decide to pay more than the monthly minimum payment, you can pay less if you have an unexpected financial emergency come up.

Thefederal government's loan simulator lets you explore how each payment plan would work in your situation. Keep in mind if you want to switch your payment plan to lower your payments, you should contact your student loan servicer.

Other Important Things To Know About Your Federal Student Loans

Federal loan borrowers have additional benefits available to them, including deferment and forbearance options. If you have these kinds of loans and experience hardship, you may be able to defer your payments. For example, if you lose your job, your work hours are cut, you're on active military duty, or go back to school, you're eligible to defer or postpone your student loan payments. 

It's important to keep in mind that your loan balance will increase if you don't pay the interest while on a deferment or forbearance. In the long run, not paying loan interest will raise your loan balance which means higher payment when the temporary break on your student loan payments end.

If you don't qualify for a deferment, you can submit a forbearance request to your loan servicer. A forbearance can be a lifesaver because it lets you pause your payments temporarily. This can be a much-needed financial break. Also, getting a forbearance can lower your payments for at least 12 months. Because of the coronavirus pandemic, the government has placed all federal student loans in forbearance status.

Some people opt to refinance their government-backed loans with private student loans to save money. You should know that refinancing your federal loans to private loans has some disadvantages. First, you won't benefit from government forbearance and deferment programs or have access to any of the income-based repayment options. Second, you won't be able to take advantage of the current break from student loan payments owed to the federal government because of the coronavirus pandemic. This break from payments because of the pandemic doesn't apply to people that owe private student loans.

Discharging student loans in bankruptcy is very difficult, though not impossible. Today's bankruptcy laws prevent an individual from eliminating student loans unless having to repay student loan debt would cause themundue hardship. But, bankruptcy can help with managing the most difficult loans besides student loan debt. To find out more, you can contact abankruptcy lawyer to discuss the benefits of filing Chapter 7 or Chapter 13 bankruptcy.

If you have more than one federal loan, you can apply for a Direct Consolidation Loan to combine all your loans into one easy monthly payment. Getting a loan consolidation opens you up to other federal loan payment plans and forgiveness programs.

Let's Summarize...

Fortunately, you have a variety of available options to repay your student loans. It's important to learn about and carefully consider all of your options before deciding on a payment plan that's right for you.

Written By:

Attorney Tori Bramble


Tori Bramble is a bankruptcy attorney with over 20 years of experience. She is licensed to practice in Maryland and Virginia and has helped over 1,500 clients discharge thousands of dollars and find debt relief by filing Chapter 7 or Chapter 13 bankruptcy. A New York native, Tori... read more about Attorney Tori Bramble

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