Written By Travis Hornsby, CFA®, CFP®
Unfortunately for student loan borrowers, every time a new Congress tinkers with the student loan system, it adds a new federal student loan repayment option on top of all the ones that came before. We like to call this the “student loan sandwich.” And with so many options, it's hard to know which is the best student loan repayment plan for your situation.
Here's a breakdown of the student loan repayment plans available.
How many student loan repayment plans are there?
In the ‘90s, there were only a couple of student loan payment choices for federal debt. As the student loan crisis exploded, lawmakers have created new plans but left the old ones intact.
There are now 11 different student loan repayment options with the U.S. Department of Education that you can select from. Even though many of these plans are almost useless, almost every one has a unique application where you’d want to utilize it.
Student loans are like taxes if you have huge debt from your education. Yes, it’s scary when you owe a lot. But because there are so many options, there are extremely beneficial ways to ethically use the complicated rules to your advantage.
Read on to see how each of the student loan repayment plans ranks from worst to best.
Related: Your Guide to Federal Loan Repayment Plans That Qualify for PSLF
The 3 worst federal student loan repayment options
This group of repayment options doesn’t have a huge application in the vast majority of scenarios.
Our team has advised on over $2.4 billion worth of student loans for thousands of borrowers. If there were great uses for these payment plans, we would have seen them by now.
11. Income-Sensitive Repayment
If you have loans through the Federal Family Education Loan (FFEL) Program, then congratulations! You’re eligible for this strange repayment plan — Income-Sensitive Repayment (ISR).
You’ll pay your loan over 15 years with the payment differing based on your servicer. You also must pay the full debt off.
If you do have FFEL Loans, then you’re at least eligible for Income-Based Repayment, where you might be eligible for student loan forgiveness after 25 years of payments.
Alternatively, you might even want to refinance to a lower interest rate.
The final alternative would be consolidating your FFEL Loan to a Direct Loan so you get significantly more student loan repayment options.
Either way, ISR sounds good, but it’s totally lousy.
10. Extended 25-Year Plan
The Extended Repayment Plan doesn’t qualify for Public Service Loan Forgiveness (PSLF), and it’s more expensive than consolidating to a 30-year fixed payment (we’ll see that later).
It’s also not based on your income. If you earn too much to qualify for one of those options, you probably need to refinance and not pay a giant interest rate to the government for 2.5 decades.
You need to owe more than $30,000 to have the Extended Plan as a payment option.
Many borrowers in my experience could be on Extended and not even know they have better options. Usually when someone is on this plan, I know we can save them a lot of money.
9. Graduated 10-Year Plan
The most common way to end up on Graduated 10-Year is if you have a bunch of non-consolidated loans.
The Graduated 10-Year plan is like a fixed payment option that forces you to pay off the loan balance you owe — but with one big difference.
The payments start off small and significantly increase over time. Kind of like a ballooning mortgage. That went over great in the last financial crisis, right?
In reality, someone on a Graduated Plan could consolidate and possibly get on a 30-year repayment plan if they truly need a low payment.
Income-based repayment plan options usually are also better than this.
The 4 federal student loan payment plans with limited use
The following four student loan repayment choices have some important reasons you might use them. These cases will represent a small minority of borrowers, though. That’s why these plans don’t appear higher on the list.
8. Standard Repayment Plan for consolidation loans
The Standard 10-Year Repayment Plan ceases to exist for consolidation loans. Once you consolidate, you only have the option to sign up for the Standard Repayment Plan.
That sounds like the exact same thing, but it’s not. Here are the six different repayment term lengths for the Standard Plan when you consolidate, depending on what you owe:
- Less than $7.5k: 10 years
- $7.5k to $10k: 12 years
- $10k to $20k: 15 years
- $20k to $40k: 20 years
- $40k to $60k: 25 years
- $60k and up: 30 years
That means anybody who consolidates and owes more than $60,000 would get put on a 30-year fixed payment plan.
Why would you ever want this?
In the mid-2000s, there were borrowers who locked in 3% rates on their FFEL Loans. That group could consolidate and reset the payment clock to 30 years at the same interest rate.
That means hundreds of thousands of borrowers could extend their student loan debt basically forever at an ultra-low interest rate — lower than what they have on their mortgage.
This doesn’t apply to a ton of people, but when it does, it’s pretty sweet.
7. Graduated Repayment Plan for consolidation loans
The Graduated Plan for consolidation loans is very similar to the Standard Plan for consolidation loans. The main difference is that the Graduated Plan payments start low and increase significantly over time.
The loan term length of the graduated plan is the same as for the Standard in the prior section.
- Less than $7.5k: 10 years
- $7.5k to $10k: 12 years
- $10k to $20k: 15 years
- $20k to $40k: 20 years
- $40k to $60k: 25 years
- $60k and up: 30 years
You’d use this plan if you have that ultra-low rate on your federal debt and want to pay even less because you have better uses for your money.
6. Standard 10-Year Plan
None of the payment plans we’ve covered so far count for PSLF.
But the Standard 10-Year explicitly counts. Even if you don’t have a financial hardship anymore, if you haven’t consolidated, you can sign up for the Standard 10-Year Plan. And it counts for PSLF.
One of the most common problems that happens for borrowers seeking to use loan forgiveness programs is that they won’t be eligible to pay based on their income anymore, and they call their loan servicer seeking advice.
The servicer tells them to switch to Revised Pay As You Earn — because that’s what they tell everybody. When you do that, you can’t switch back to another payment plan that has a cap like PAYE or IBR.
With the Standard 10-Year on non-consolidated loans, you have an out. If you’ve consolidated and are on REPAYE without a financial hardship, you’re out of luck.
Other than PSLF, the Standard 10-Year has virtually no application that’s useful. If you’re not going for loan forgiveness, you need to scroll to the bottom of this blog post and check out your student loan refinancing options.
5. Income-Contingent Repayment (ICR)
The Income-Contingent Repayment plan started back in the 1990s as a way for struggling borrowers to pay based on their income.
Today, ICR basically has one use: for Parent PLUS borrowers utilizing the “death forgiveness” strategy.
Under ICR, you must pay 20% of your adjusted gross income (AGI) minus 100% of the federal poverty line. That’s a much higher payment than other income-driven repayment plans, or IDR for short.
Parent PLUS borrowers who consolidate their loans currently only have the option to pay under the ICR plan.
ICR qualifies for PSLF, but it’s fairly rare for a Parent PLUS borrower to use it for PSLF.
Given that ICR only includes AGI and Social Security often doesn’t show up in that statistic, retirees with limited income should consider using ICR if they owe Parent PLUS Loans that are greater than their income.
The 4 Best Student Loan Repayment Plans
These income-driven plans are what 80% or more of the population should be using (if you shouldn’t be refinancing, which is a different conversation entirely).
The fourth-best plan clearly belongs where I have it. You could make an argument for shuffling around the top three, but all of them are extremely helpful to borrowers who took out a ton of student debt.
4. Income-Based Repayment (aka Old IBR)
The Old IBR version of Income Based Repayment asks for 15% of your AGI, minus 150% of the federal poverty line for your family size.
IBR is a PSLF qualifying payment plan. So why do I have it ranked No. 4?
That’s because the other student loan payment options ask for 10% of your discretionary income.
Why use Old IBR? Because many borrowers aren’t eligible for the newer repayment options.
FFEL borrowers can only use Old IBR. If you’re 10 or 15 years into a 25-year repayment period until forgiveness, you definitely don’t want to reset the clock to zero.
Some Direct Loan borrowers only can choose between REPAYE and IBR.
With Old IBR, you can file taxes separately and exclude your spouse’s income from the payment calculation. That might be very valuable for a couple where one spouse has no debt and one does, and they can’t sign up for another option.
You’ll see why I call it old IBR in a second.
3. New Income-Based Repayment (New IBR)
Remember my “student loan sandwich” metaphor? Every time a new payment plan is made, it’s layered on top of the old ones like toppings on a sandwich.
To qualify for New IBR, you must be a new borrower as of July 1, 2014.
That means you can’t owe any loans when you borrow after that date. You could pay off all your old loans prior to taking out new ones and qualify for New IBR this way.
New IBR is virtually identical to Pay As You Earn. The only thing I can think of that could be different is PAYE might have slightly better interest capitalization protections, but we are really splitting hairs here.
I put New IBR and Pay As You Earn under the same category when I make custom plans for student loan borrowers.
But I put New IBR in second place because it’s confusingly named the exact same thing as Old IBR. In fact, both plans show up as the exact same thing on reporting documents. Most borrowers will frustratingly have no idea which student loan payment option they’re using if you aim to use New IBR.
2. Pay As You Earn (PAYE)
The strengths of the Pay As You Earn repayment plan are:
- Payment amount equal to 10% of discretionary income
- Can file separately for taxes and exclude spousal income
- Qualifies for PSLF
- Payments until forgiveness last 20 years if you don’t do PSLF
- Interest capitalization is limited to no more than 10% of the principal loan balance from when you entered the plan
I love the PAYE plan because it gives the borrower a ton of options if you get married (or unmarried) to move your payment around seamlessly.
PAYE also lasts only 20 years if you go for private sector forgiveness.
The downside? PAYE doesn’t offer interest subsidies except to a very limited degree on subsidized loans for the first three years.
1. Saving on a Valuable Education (SAVE)
Formerly known as Revised Pay As You Earn (REPAYE), the new SAVE Plan was released under President Biden's administration. This is the payment plan that loan servicers are steering borrowers to in masses.
I’ll bet you 99 times out of 100, if you call a loan servicer and tell them you’re struggling to make monthly payments, they’re going to tell you to sign up for SAVE.
In many cases, that’s great advice. However, sometimes it’s not. Telling someone to sign up for SAVE is the student loan equivalent of “take an aspirin and call me in the morning.”
It’s not perfect advice, but it’s fairly helpful and gets you off the phone.
SAVE comes with more generous borrower benefits than other IDR plans, including lowering payments to 5% of discretionary income for undergrads and increasing the poverty line deduction to 225%.
For undergrad borrowers, the maximum repayment period for SAVE is 20 years versus 25 years for those with graduate loans. But if your original loan amount was $12,000 or less, you can receive forgiveness after making only 10 years of payments.
SAVE also subsidizes 100% of all the interest your required payment doesn’t cover for the life of the loan. That’s very helpful if your plan is to eventually refinance or seek forgiveness while maintaining lower monthly payments.
Additionally, the SAVE Plan excludes spousal income if you're married and file taxes separately. This is a big change from REPAYE, which automatically included your spouse's income regardless of your income tax filing status.
Finally, SAVE counts for PSLF. You’re also always eligible for SAVE if you have Direct Loans, since there’s no income cap.
When to avoid these 11 federal student loan repayment plans
I suggest ditching the federal loan options and using our cash-back refinancing links to lower your interest instead if the following five criteria apply to you:
- You owe less than 1.5 times your income
- You work in the private sector
- Your emergency fund covers at least six months’ worth of expenses
- Paying at least 1% of your balance each month would be easy
- You have a stable job
It makes no sense to use federal repayment options if all you’re going to do is pay the government 6% to 8% interest until your loans are gone.
Instead, transfer your loans to a private lender for a lower rate by visiting the sites listed at the bottom of this post.
Are 11 student loan repayment options too many? We can help
All we do every day (besides churn out free content) is make custom plans for federal and private student loan borrowers.
You can check out our servicers by visiting the “Hire Us” part of the site menu or look at our availability using the button below.
What do you think of our rankings of the top 11 federal payment choices? Comment below!
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
I am pursuing PSLF and currently enrolled in REPAYE.
I have made about 5 payments under the plan so far.
If I switch to PAYE, will those 5 payments still count?
TIA
Yes they will. You might just have to make a 1 time $5 payment to process the switch.