How To Choose The Right Student Loan Repayment Plan

Mary Joseph
Mary Joseph May 26, 2023
Updated 2023/05/26 at 6:35 PM
student loan plan
student loan plan

Graduating from college is an exhilarating period that opens up new opportunities and obligations, such as the repayment of student loans.

This can be a bewildering process, but there are ways to make it more manageable. Before selecting a repayment plan, it is crucial to evaluate certain factors.

Paying off student loans can be stressful, but there’s a positive aspect: Federal student loans provide various options for repayment.

The Federal Student Aid office offers eight different plans to choose from, making it important to select the optimal repayment option for your situation.

To better handle the repayment of student loans, it is crucial to be aware of the available choices. Here are factors to ponder prior to selecting a repayment scheme:

How To Choose The Right Student Loan Repayment Plan

Discover The Various Student Debt Repayment Options:

To select the ideal repayment option for your student loans, start by familiarizing yourself with the available choices.

Federal student loans offer eight different plans, although not all loan types are eligible for each plan. You can explore the details of each plan and its qualifying criteria by following the provided links.

Standard repayment: This plan lasts for 10 years, with fixed monthly payments throughout the term.

Graduated repayment: Similar to the standard plan, this option also spans 10 years. However, the key difference is that your initial monthly payments will be smaller and will gradually increase, typically every two years.

Extended repayment: With this plan, you can reduce your monthly payments and extend the repayment period for up to 25 years.

You have the option to choose fixed payments, which remain constant each month or graduated payments, which increase over time.

These plans, including Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Sensitive Repayment (ISR), offer the possibility of loan forgiveness after 20 or 25 years if the loan balance remains unpaid.

If you do not opt for an alternative plan, your federal loans will be repaid according to the standard 10-year repayment plan.

However, some borrowers find the standard plan to be financially burdensome, while others feel it lacks the necessary intensity to eliminate their debt.

These Programs Do Not Apply To Private Student Loans:

Private student loans are distinct from other types of loans. They generally lack flexible repayment options and are not eligible for federal plans like Income-Driven Repayment (IDR). Each lender establishes its own criteria, but typically, they offer a choice of repayment terms ranging from five to 20 years at the time of borrowing.

Therefore, it is advisable to explore various private student loan options before making a decision.

If you have already taken out a loan and are having difficulty making payments, it is important to communicate with your lender.

They can help you explore alternatives such as changing the loan term or temporarily postponing payments through forbearance.

Consider refinancing your student loans as well, as it can help you reorganize your debt. Contact your lender or loan servicer to find out the specific repayment options they offer for student loans, as it varies among private lenders.

Determine Your Monthly Payment Capacity:

Now that you’ve familiarized yourself with various student loan repayment options, it’s important to examine your budget closely.

Utilize a spreadsheet or a mobile app for tracking expenses to gain a clear understanding of your monthly cash flow.

Based on your income and expenses, determine the amount you can reasonably allocate towards your student loan payments every month.

Next, employ a resource such as the Federal Student Aid Loan Simulator to estimate your payments under different repayment plans.

If You Want To Reduce Your Payments:

If your budget is being negatively affected by your student loan payments through the standard repayment plan, consider applying for an alternative plan.

Various plans are available, each with its own eligibility criteria. Factors like your income, loan type, loan disbursement date, and total debt may limit your options.

When deciding to change your repayment plan, ask yourself the following questions:

  • Will my income increase in the future? If yes, you can choose the graduated repayment plan where payments start low and gradually increase, allowing you to pay off your debt in 10 years.
  • Do I need long-term relief? If yes, consider the extended repayment plan or an IDR plan, which extends the repayment term to 20 or 25 years. IDR plans, particularly, are preferable as they may lead to loan forgiveness.
  • Am I pursuing Public Service Loan Forgiveness (PSLF)? If so, you must enrol in an IDR plan to be eligible.
  • Do I have parent PLUS loans? If you are a parent borrower, your only option for an IDR plan is the Income-Contingent Repayment plan, but you must first consolidate your loan.
  • Do I need to temporarily pause my loan payments due to job loss or return to school? In such cases, consider student loan deferment or forbearance to avoid default.

Choose the repayment plan that aligns with your situation and makes your monthly payments more manageable.

However, keep in mind that lowering your monthly payments may result in higher interest payments over time.

Note that if you have private student loans and require assistance, you should contact your loan servicer. They may offer temporary forbearance during times of economic hardship.

If You Can Increase Your Monthly Payment:

Upon reviewing your budget thoroughly, you may come to a different conclusion: paying a higher amount each month can lead to quicker debt repayment.

In such a scenario, you have the option to make additional payments without incurring any penalties.

To accelerate the process of clearing your debt, you have the choice to establish regular or one-time supplementary payments.

However, it may be necessary to inform your loan servicer to allocate these extra payments towards reducing your outstanding balance, instead of reserving them for future payments.

Calculate The Interest Costs For Student Loans Using The Calculator:

After comparing your budget to different student loan repayment plans, perform the necessary calculations to determine the implications of each plan for you.

If you’re unsure where to begin, student loan calculators can simplify the process by removing the guesswork.

For instance, let’s assume you have a loan balance of $30,000 with a 5.70% interest rate. Under the 10-year standard plan, you can anticipate paying $329 per month for a duration of 10 years.

Throughout the loan term, the interest paid will amount to approximately $9,427.

However, if you can manage to increase your monthly payments by just $50, you would save roughly $1,700 in interest and become debt-free one year and eight months earlier than scheduled. By further increasing your payments to $500 per month, you could save over $4,000 in interest and eliminate your debt approximately four years ahead of schedule.

By illustrating the total savings you could achieve, these calculators can serve as a source of motivation to expedite the repayment of your loans.

Adjust Your Plan Or refinance If Circumstances Change:

Repaying student loans is not a one-size-fits-all process. The repayment plan you choose will depend on your individual circumstances and may change over time.

If your loan payments are overwhelming, an Income-Driven Repayment (IDR) plan can help lower your monthly payments and prevent default.

On the other hand, if you start earning more money through a well-paying job or a side gig, you can increase your loan payments to become debt-free faster.

Once your finances are stable, you have the option to refinance your loans with new terms. Refinancing involves transferring one or more of your student loans to a new private lender. By doing so, you may secure a lower interest rate and choose new repayment terms.

This could mean reducing your monthly payments or shortening the time it takes to pay off your loans. However, it is crucial to carefully consider the impact of these changes on your budget by performing the necessary calculations.

For instance, if you refinanced a $30,000 loan with a 5.70% interest rate and a 10-year term to a new plan with a 4.50% interest rate and a five-year term, your monthly payments would increase by $230.

However, you would eliminate your debt five years earlier and save $5,870 in interest.

Generally, individuals with a steady income and a strong credit score are the most suitable candidates for student loan refinancing.

It is important to note that if you choose to refinance federal student loans, you will lose access to federal repayment options such as IDR plans and forgiveness programs.


Many people feel overwhelmed when trying to understand the various student loan repayment plans. It’s common to be unsure about the options and their advantages and disadvantages.

However, by conducting thorough research and being patient, you can reap the benefits of finding a repayment plan that saves you money or allows you to have more disposable income each month. If you need financial relief or wish to pay off your debt sooner, it’s worth exploring your student loan repayment choices.

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