If you took out student loans to pay for college, you know how challenging repaying your debt can be. According to the Federal Reserve, one-fifth of young adults with education debt were behind on their payments.
If you’re struggling to keep up with your federal or private loan payments, you may not realize that there are several ways to make your loans more manageable.
Whether you want to learn how to lower student loan interest or reduce your monthly payment, here’s everything you need to know about your student loan repayment options. Also, if you owe more than $100K, this article on how to pay off $100K+ in student loans should be your next read.
10 federal student loan repayment plans
If you have federal student loan loans, such as Direct Loans, FFEL Loans, or Perkins Loans, you may be eligible for the following federal student loan repayment plans or discharge options.
1. Standard Repayment Plan
The Standard Repayment Plan is the default payment plan you’re entered into. Under a Standard Repayment Plan, you make fixed monthly payments and will repay your loans over the course of 10 years.
2. Extended Repayment
If you have more than $30,000 in Direct Loans, you may qualify for an Extended Repayment Plan. With this option, your repayment term is extended to 25 years. Your payments may be fixed or graduated. If they’re graduated, they will start off low and increase every two years.
3. Graduated Repayment
Available to Direct Loan borrowers, your payments under a Graduated Repayment Plan start off quite low. Every two years, your payments increase, regardless of your income. Your loans are still paid off within 10 years, but you’ll pay more in interest than you would under a Standard Repayment Plan since you start with lower payments.
4. Income Sensitive Repayment
Income Sensitive Repayment is only available for FFEL borrowers. Under this repayment option, your payment is based on your annual income, but your loan is paid off within 15 years.
5. Income-Driven Repayment
Income-driven repayment (IDR) plans are available for Direct Loan borrowers. IDR plans are based on your discretionary income and family size. Under an IDR, your repayment term is extended, and your monthly payment could be dramatically reduced; some borrowers even qualify for $0 payments. There are four different IDR plans:
- Income-Based Repayment
- Income-Contingent Repayment
- Pay As You Earn
- Revised Pay As You Earn
There are some drawbacks to IDR plans, but they can be useful if you’re struggling to keep up with your monthly payments.
You can apply for an IDR plan online, or you can submit a request through your loan servicer.
During forbearance, your payments are temporarily suspended due to financial hardship. However, interest will continue to accrue and will be capitalized or added to the principal balance, increasing the total amount that you owe.
Like forbearance, entering into deferment allows you to temporarily postpone your loan payments. However, if you have subsidized loans, interest will not accrue on your loans while the payments are deferred. All other federal loans will accrue interest, and the interest will be capitalized.
8. Loan Forgiveness
Depending on your occupation, you may be eligible for partial loan forgiveness. There are two main loan forgiveness programs:
- Public Service Loan Forgiveness (PSLF): If you work for a non-profit organization or the government full-time for 10 years, you can qualify for PSLF. To get your loans forgiven, you must make 120 qualifying monthly payments while working for an eligible employer.
- Teacher Loan Forgiveness: If you teach full-time in a low-income school or educational service agency for five full and consecutive years, you can qualify for up to $17,500 in loan forgiveness.
9. Loan Discharge
Depending on certain circumstances outside of your control, you may qualify for full or partial loan discharge. There are two of the most common forms of loan discharge:
- Total and Permanent Disability Discharge: If you become totally and permanently disabled and are unable to work, you may qualify for total and permanent disability discharge. For more information, visit disabilitydischarge.com.
- Closed School Discharge: If you were still enrolled when your college closed, were on an approved leave of absence when it shut its doors, or the school closed within 120 days of withdrawing, you could be eligible for a 100% discharge of your federal Direct loans.
10. Direct Consolidation
If you have multiple federal loans or want a lower monthly payment, one option is Direct Consolidation. With this option, you consolidate your loans into one. You’ll have just one loan to manage and one monthly payment. Under a Direct Consolidation Loan, you can extend your loan term up to 30 years, reducing your monthly payment. Your new interest rate will be the weighted average of your existing loans, rounded up to the nearest one-eighth of one percent.
5 private student loan repayment options
If you have private student loans, you typically have the following repayment options.
1. Immediate repayment
With immediate repayment, you start making full payments — including principal and interest — right away, even when you’re in school. Immediate repayment tends to be the least expensive repayment plan since less interest accrues.
2. Deferred repayment
If you opt for a deferred repayment plan, you don’t make payments while you’re in school. Instead, you defer payments until after graduation. However, interest will still accrue while you’re in school.
3. Fixed repayment
Under fixed repayment, you make a fixed payment, such as $25 per month, while in school. Even though you’re making a small payment, the amount helps reduce the amount of interest that accrues, allowing you to save money.
4. Interest-only repayment
With an interest-only repayment plan, you pay only the interest that accrues each month while you’re in school. Once you graduate, you make payments against the principal and interest.
5. Student loan refinancing
Another way to tackle your debt is to refinance your student loans. With student loan refinancing, also known as private loan consolidation, you work with a private lender to consolidate your loans into one. Going forward, you’ll have just one loan and one easy payment to remember.
But unlike federal loan consolidation, you can qualify for a lower interest rate and save a significant amount of money over the life of your loan.
Student loan refinancing also offers flexible repayment terms to either:
- Pay off your student loans faster with a shorter term
- Lower your monthly payment with a longer term
If you decide to refinance your loans, use Purefy’s Compare Rates tool to get quotes from top refinancing lenders all at once and in once place – in under 5 minutes.