As every Grownup knows, student loans are complicated. But don’t panic! Matt Becker runs down all the options for paying off federal student loans.

You want your student loans gone as quickly as possible. You also have a million other bills and things you want to save for, and adding student loan payments on top of all that makes even the best budgets tight.

So, how do you choose the student loan repayment plan that helps you afford your payments and get you debt-free as quickly as possible? This guide will help you understand your options and make the right decision for your specific situation.

Quick note: This article is about federal student loan repayment plans. Private student loans are not eligible for these plans, though you might consider refinancing.

Rule of Thumb

When choosing a student loan repayment plan, the best option in my opinion is almost always the plan that allows for the smallest required monthly payment.

The reason is that while you can always choose to pay more than the minimum, a smaller required payment may give you more flexibility if your circumstances or goals change.

So, with that as your guide, here’s a quick rundown of your main options.

Standard Repayment

This is the default repayment plan for student loans. Unless you make a different choice, you will be slotted into this plan.

Under standard repayment, you typically make a fixed monthly payment over a period of 10 years. If you have a consolidation loan, the repayment period may be as long as 30 years.

Pros of Standard Repayment:

  • Easy to enroll (you don’t have to do anything)
  • Typically saves you money by minimizing the interest paid

Cons of standard repayment:

  • Typically has the highest monthly payment
  • Fixed payment means no flexibility if circumstances change
  • No possibility for loan forgiveness

Learn more about standard repayment on the Federal Student Aid website.

Pay As You Earn (PAYE)

PAYE is the first of the income-driven repayment plans, meaning that your monthly payment varies with your income and family size. The lower your income and the bigger your family, the less you will be required to pay each month.

There’s also the potential to have some of your student loan debt forgiven if you still have a balance after making payments for 20 years. It’s worth noting, though, that in most cases any forgiven debt will count as taxable income.

Pros of PAYE:

  • Monthly payment is capped at 10 percent of discretionary income
  • Monthly payment is also capped at the standard 10-year repayment amount
  • Potential loan forgiveness after 20 years

Cons of PAYE:

Learn more about PAYE and submit your application online.

Revised Pay As You Earn (REPAYE)

REPAYE is a new repayment plan designed to open many of the PAYE benefits up to more borrowers. If you can’t qualify for PAYE, this plan is worth a close look.

Pros of REPAYE:

  • Open to everyone
  • Monthly payment is capped at 10 percent of discretionary income
  • Potential loan forgiveness after 20 to 25 years

Cons of REPAYE:

  • Monthly payment is not capped at the standard 10-year repayment amount; it will increase indefinitely along with your income
  • Your spouse’s income is factored into your payment calculation, even if you file taxes separately
  • Repayment period is 25 years instead of 20 if you have graduate or professional school loans
  • You may need to consolidate certain loans in order to qualify

Learn more about REPAYE; you can apply on the Federal Student Aid website.

Income-Based Repayment (IBR)

IBR used to be the best place to look if you didn’t qualify for PAYE. The terms aren’t quite as generous as PAYE, but with fewer restrictions it’s open to more people.

Now that REPAYE is available to everyone, IBR has more limited appeal. But there are still situations in which IBR is advantageous.

Say one spouse has a lot of student loan debt relative to their income and the other spouse has a high income and little or no debt. In that situation, filing taxes separately can lead to a lower IBR payment for the spouse with debt, while REPAYE will not (since the spouse’s income is included, anyway). That lower payment can be helpful in the right situations.

Pros of IBR:

  • Open to more people than PAYE
  • Monthly payment is capped at 15 percent of discretionary income
  • Potential loan forgiveness after 25 years

Cons of IBR:

  • Higher payment and longer repayment period than PAYE and REPAYE
  • There is also New IBR that caps payments at 10 percent, but people who qualify will also be eligible for PAYE (and PAYE is almost always better)
  • You may need to consolidate certain loans in order to qualify

Learn more about IBR and apply on the Federal Student Aid website.

Public Service Loan Forgiveness (PSLF)

PSLF isn’t a repayment plan, but it’s worth mentioning because it’s so beneficial and you must be enrolled in one of the income-driven repayment plans in order to qualify.

If you work for the government or a qualifying nonprofit and make qualifying income-driven repayments for 10 years, you can have your entire remaining balance forgiven tax-free.

Learn more about PSLF on the Federal Student Aid website.

Other Repayment Plans

There are other repayment plans, such as extended repayment, graduated repayment, and income-contingent repayment. In most cases, one of the options above will be better, but you can always look into these as well.

How to Decide

Remember, the rule of thumb to this approach is to choose the plan with the lowest required payment so that you have maximum flexibility. So, in most cases, it makes sense to at least apply for income-driven payment to see if you qualify.

But even if you do, it may make sense to pay more than the minimum. That’s often the way to minimize your cost and get debt-free as quickly as possible.

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Matt Becker is the founder of Mom and Dad Money,
a fee-only financial planning practice
dedicated to helping new parents build happy families
by making money simple.

While Society of Grownups hopes this information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

Any third-party resources or websites referenced above are not under our control. We cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

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