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Federal Student Loan Repayment Program
If you have taken federal education loans, you must repay them regardless of whether you are still in school or have graduated. To ensure that your payments are manageable, you must first plan how to repay the loan and determine which repayment plan suits you.
If you are unaware of the types of student loan repayment plans or are wondering which plan you should opt for, you have landed on the right page. Here, we will walk you through the different types of federal education loan repayment plans to help you find the best fit.
When Should You Start Repaying The Federal Education Loan?
Generally, your education loans go into repayment when you drop below half-time enrollment, graduate, or leave school. But you will have a “grace period” for the repayment of certain types of federal education loans.
What Is A Grace Period?
A grace period is the number of months between the date you leave school or graduate and the first payment due date. The grace period gives you time to select a repayment plan and settle financially.
As mentioned earlier, only some federal education loans have a grace period. For instance, if you have opted for a Direct Unsubsidized, Direct Subsidized, or Federal Family Education Loan (FFEL) program, you will have a 6-month grace period before you begin repaying the loan. If you have taken a Perkins Loan, you may have a 9-month grace period.
If you have taken PLUS loans, you will not have a grace period unless you have received the loan as a graduate or professional student. In such situations, you will get a 6-month deferment when you drop below half-time enrollment, leave school, or graduate, and no payments are required during this period.
If you are a parent who borrowed a PLUS loan to pay your child’s education fee, you can request a 6-month deferment once your child drops below half-time enrollment, graduates, or leaves school.
Once your grace period ends, you have to begin making your payments. Note that you can use the grace period only once per loan. You will not get a second grace period if you go back to school and graduate from the subsequent program post the expiration of an initial grace period.
Interests On Federal Education Loan During The Grace Period
It is important to note that interest accumulates for most federal education loans during your grace period. However, it is up to you to pay the interest during your grace period. If you don’t pay the interest during this period, it adds to your principal amount (popularly known as interest capitalization).
| Borrower Type | Parents and Graduate or Professional Students | Graduate or Professional Borrowers | Undergraduate Borrowers |
| Loan Type | Direct PLUS Loans | Direct Unsubsidized Loans | Direct Subsidized Loans and Direct Unsubsidized Loans |
| Interest Rate | 6.28% | 5.28% | 3.73% |
Perkins loans have a fixed 5% interest rate regardless of the first disbursed date.
Note –
Most federal education loans include fees (commonly known as loan fees) that are a percentage of your total loan amount. These fees are proportionately deducted from each education loan disbursement you receive while enrolled in a school. This indicates that the total money you get will be less than the amount you borrowed. However, you must repay the entire borrowed amount during the repayment process and not just the received amount.
Federal Student Loan Repayment Options
There are several federal student loan repayment plans. Below, we have listed the types of repayment plans and when you can use them.
Standard Repayment Plan
You should opt for the Standard Student Loan Repayment Plan if you want to pay off the loan as quickly as possible. This plan has higher monthly payments, which means you will pay the slightest interest throughout the loan. This allows you to clear off the loan in the shortest possible time and save your money over time.
Under the Standard Repayment Plan, the monthly payments are a fixed amount (a minimum of $50 per month) and made for up to 10 years for all types of a loan, excluding the FFEL Consolidation Loans and Direct Consolidation Loans.
When Can You Choose The Standard Repayment Plan?
You can use this plan if you have opted for any of the following loans from the FFEL and Direct Loan program:
- Direct PLUS Loans
- FFEL PLUS Loans
- Direct Subsidized Loans
- FFEL Consolidation Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
Graduated Repayment Plan
You can opt for the Graduated Repayment Plan if your income is currently low but is expected to increase over the period. In this type of repayment plan, the payments are lower and gradually increase (usually every two years). With the Graduated Repayment Plan, you can pay off your federal education loans within ten years, except for Consolidation loans that take about 10 to 30 years.
When Can You Choose The Graduated Repayment Plan?
You can choose this type of repayment plan if you have opted for any of the following loans:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans
- FFEL Consolidation Loans
Extended Repayment Plans
The Extended Repayment Plan is the best fit to make lower monthly payments over a more extended period. Under this repayment plan, the payments may be graduated or fixed. Through this plan, you can repay the loan within 25 years.
To qualify for the extended repayment plan, you must meet specific requirements. They include:
- You must have had no outstanding balance on the date you received a Direct Loan after October 7, 1998, or on a Direct Loan as of October 7, 1998, if you are a Direct Loan borrower.
- You must have more than a $30,000 balance in your outstanding Direct Loans if you are a Direct Loan borrower.
- You must have had no outstanding balance on the date you received an FFEL Program loan after October 7, 1998, or on an FFEL Program loan as of October 7, 1998, if you are an FFEL borrower.
- It would be best if you had more than a $30,000 balance in outstanding FFEL Program loans.
When Can You Choose The Extended Repayment Plan?
You can use this plan if you have opted for any of the following loans from the Federal Family Education Loan (FFEL) and William D. Ford Federal Direct Loan (Direct Loan) Program.
- Direct PLUS Loans
- FFEL PLUS Loans
- Direct Subsidized Loans
- FFEL Consolidation Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
Revised Pay As You Earn Repayment Plan (REPAYE Plan)
Here, your payment is based on your family size and income. Your monthly payments will typically be 10% of your discretionary income, and the payments are recalculated each year.
Under the REPAYE Plan, your spouse and your income or debt will be considered regardless of whether the taxes are filed separately or jointly (with limited exceptions).
Note that your loan will be forgiven if you haven’t repaid it entirely after 25 years (if the loan was taken for professional or graduate purposes) or 20 years (taken for undergraduate study).
When Can You Choose The REPAYE Plan?
You can use this plan if you have opted for any of the following loans:
- Direct PLUS loans (given to students)
- Direct Subsidized and Unsubsidized Loans
- Direct Consolidation Loans that do not include PLUS loans be it FFEL or Direct (given to parents)
Income-Contingent Repayment Plan (ICR)
In this plan, payments are based on the total amount of your Direct Loans, income, and family size. Your monthly payments will be 20% of your discretionary income or the amount you would pay on a repayment plan over 12 years with a fixed payment, whichever is lesser. The monthly payment under this plan is regularly recalculated each year based on your updated family size and income.
Under the ICR plan, your spouse’s income or debt will only be considered if you choose to repay your Direct Loans jointly or file a joint tax return.
Note that your loan will be forgiven if you haven’t repaid it entirely after 25 years.
When Can You Choose The ICR Plan?
You can use this plan if you have opted for any of the following loans:
- Direct Consolidation Loans
- Direct PLUS Loans (given to students)
- Direct Subsidized Loans
- Direct Unsubsidized Loans
Income-Based Repayment Plan (IBR)
You can opt for a student loan income-based repayment plan only if you have a high loan compared to your income. In this plan, your monthly payments will be 10% or 15% of discretionary income. The monthly payments are recalculated every year based on your updated income and family size. Under this plan, your spouse’s income or loan will only be considered if you file a joint tax return.
Note that your loan’s outstanding balance will be forgiven if you haven’t fully repaid it after 20 or 25 years. However, you must pay income tax on the amount forgiven.
When Can You Choose The IBR Plan?
You can use this plan if you have opted for any of the following loans:
- All PLUS loans (given to students)
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Consolidation Loans (Direct or FFEL) that do not include FFEL PLUS or Direct Loans (given to parents)
Income-Sensitive Repayment Plan
If you want to pay lower monthly payments, then the Income-Sensitive Repayment Plan is the best fit. Under this plan, the monthly payments are made for a maximum of 10 years and are increased or decreased depending on your income.
When Can You Choose The Income-Sensitive Repayment Plan?
You can opt for this plan if you have taken loans through any of the following programs.
- FFEL PLUS Loans
- FFEL Consolidation Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
Note –
Perkins Loan repayment plans are not the same as those for FFEL Program or Direct Loan Program loans. Talk to your school authorities to know more about the Perkins Loan repayment plans.
You can choose a preferred repayment plan to clear off your federal education loans. If you don’t opt for a plan, you will automatically be entitled to the Standard Repayment Plan.
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