Last Updated: February 2, 2023
A student loan repayment plan is an arrangement of how much money you pay towards your student loan each month. Your plan also determines how many years it will take to pay back the money you’ve loaned.
So what is the best student loan repayment plan?
Keep reading to know more about the differences between federal and private student loan repayment plans or what other options you might have access to.
Federal vs Private Student Loan
It’s important to know the difference between federal and private student loans so that you can pick the best option for your needs. There are some benefits that each type of student loan can offer you.
A federal student loan is provided by the government. There are three types of federal student loans for college:
- Direct subsidized loans: This type is designed to help students pay for post-secondary education and fees such as tuition and expenses for school supplies.
- Direct unsubsidized loans: This type is low-interest-based with the best loan repayment plan options. There is information about interest and fees as well as the latest federal student aid updates through the US Department of Education.
- Direct Plus loans: This loan has two types. The Grad Plus for professional and graduate students. The Parent Plus Loans are for the parents of students.
Federal student loans provide more flexibility compared to private student loans. For example, student borrowers don’t need a credit check to be eligible for Federal Plus Loans. There are also some federal student loan options that offer income-driven repayment plans.
On the other hand, a private student loan is owned by credit unions and banks. You can opt for a private student loan after looking at grants or scholarships. With this type of student loan, you’ll get variable or fixed interest rates.
What’s more, private student loan services will need to check your credit history to see if you’re eligible.
So which student loan repayment plan is best for your requirements? Find out in this next section.
Private Student Loan Repayment Plans
There are four private loan repayment options for you to choose from. But not all lenders offer all four of them. The four private student loan plans are as follows:
- Interest-only repayment: while you’re still in school you will only pay the interest rate back on this loan. The drawback is you won’t make any progress paying off your loan this way. On the other hand, the repayment of the student loan will be more manageable. Your loan balance won’t grow while you’re still in college.
- Immediate repayment: With this loan, you’ll make full monthly payments while still in school. This will minimize the interest you pay.
- Full determent: You won’t be charged payment amounts while you’re still in school so you won’t have to pay anything while you’re studying. However, your debt balance will grow. This is one of the ideal private student loan repayment options for those who don’t want to worry about paying the amount back immediately.
- Partial interest repayment plan: With this loan, you’ll have fixed monthly repayments that will cover part of the interest you owe.
Federal Student Loan Repayment Plans
There are a variety of federal student loan repayment program options to choose from. You can select one of the three plans described below:
- Graduated: All types of borrowers are eligible for a federal graduate student loan. At first, payments are lower and then increase every two years. The loan balance is structured so that it can be paid off within a 10 year period. For consolidation loans, it will be between 10 and 30 years for the balance to be paid in full.
- Standard: Standard payments are fixed to ensure you can pay your loan off within 10 years. With standard loans, you’ll typically pay less over time. Still, this is not an ideal option if you’re looking for public service loan forgiveness.
- Extended: An extended student loan payment can be graduated or fixed. This will ensure you can pay the loan within 25 years. This is the best option for student loan repayment because of the extended years.
Other Federal Student Loan Repayment Options
So what is the best repayment plan for student loans? Well, if you want alternative choices then you may want to consider a federal student loan. There are some additional options offered to students under this loan. Take a look at them below.
Income or income-driven repayment plan is only for federal student loans. The types of loans eligible for income-based plans are Grad PLUS, Stafford, and Consolidation. It’s designed to make repaying loans easier for students who pursue a career in jobs with lower income.
The income-based loan works by capping monthly payments at 15% of your discretionary income. The payments are based on the adjusted gross income of the prior tax year. The maximum repayment period for this loan is 25 years.
This is one of the best federal student loans repayment options for those who are pursuing careers in public service.
A contingent federal loan repayment plan is structured so that the amount can be paid over a period of 12 years. It’s also adjusted based on an applicant’s income or 20% of discretionary income divided by 12.
The maximum repayment period for this repayment plan is 25 years. It’s only offered by the US Department of Education so it’s not for private student loans. Interest rates are fixed and only student loans are eligible for this federal student loan repayment plan. It isn’t available for Parent Plus.
Similar to income-based federal student loan repayment plans this option is suitable for students who want to pursue careers that have lower income brackets.
Income-sensitive repayment is one of the best repayment options for student loans for FFEL Plus, FFEL Consolidation, subsidized and unsubsidized loans. Your monthly repayments will increase or decrease based on your annual income. The maximum time to complete payment is 10 years.
An income-sensitive repayment plan is suitable for students who want lower payments on their FFEL loans. Additionally, some of the top student loan refinance companies use this repayment plan for a maximum of 5 years.
Revised Pay as You Earn
Revised pay as you earn plan requires payments that are 10% of your monthly discretionary income. It forgives your remaining balance between 20 and 25 years of your payment plan. To be eligible you must have federal direct loans. It’s not eligible for Parent Plus loans.
Revised pay as you earn plan is ideal for students who want to reduce student loan payment amounts as time progresses. It’s also ideal for non-married borrowers who have no grad debt and who earn higher incomes.
Pay as You Earn
Pay as you earn has student loan repayment terms of 20 years. It’s based on 10% of your discretionary income and it’s only eligible for federal direct loans.
This is one of the best types of student loan repayment plans for couples who are married and that both have incomes. It’s also ideal if you have grad school debt and you don’t expect your salary to increase over time.
What Things to Consider When Thinking of Repayment Plans
Did you know according to student loan debt statistics there are over 43.2 million student burrowers that are in debt by an average of $36,406? How can you ensure you don’t become part of that statistic? Choose one of the following options:
- Loan Forgiveness Program
- Lower Monthly Amounts
- Lower Interest Rates
Consolidate or Refinance Federal Loan With Private Lenders
Many people wonder if they can refinance student loans. The answer is yes! You can also refinance your federal student loan with a private lender but there are some drawbacks to this. If you refinance your federal student loan, you may lose benefits such as Public Service Loan Forgiveness and income-driven repayment plan options.
As a student, you should be able to concentrate on your studies without worrying about debt. That’s why if you have a large debt balance that you’re struggling to manage then you should opt for refinancing. Ideally, you want to choose a company with low-interest rates.
Additionally, you want to pick a refinance company that offers terms based on your requirements. At this stage, you should compare your loan amounts and repayment terms to find a suitable option.
Lastly, find out what lenders offer in terms of payment options. Do you just want to reduce student loan payment amounts, or are you looking for something more solid? With flexible options, you can opt for interest-only payments for a certain time.
Make sure you choose a company with excellent customer support. You can find out about a company’s service by reading student reviews.
As you can see federal student loan repayment plans offer you more options compared to private ones. The advantage of federal student loan repayment is that you don’t have to worry about your credit score because this part is not required to be eligible.
You’ll also be happy to know that as of 2020 student loans are tax-free. Take a look at the difference between private and federal to find the best options for your needs. One of the best options is the income-based repayment plan because you can be forgiven after 25 years for your remaining balance.
There are several repayment plans for student loans such as extended, graduate, income-based, income-sensitive, income-contingent, and standard. It’s important to look at these options carefully because they all offer different payment terms and benefits.
The best student loan payment plans are income-driven and standard. But this will depend on your future goals. Standard loans are fixed so you can pay off the money borrowed within 10 years. Income-based plans are ideal for students who will be working in low-income careers such as public service.
The three most common student loan repayment plans are graduate, extended and standard. With graduate loans payments start off low and then increase every two years. Extended repayments can be paid off within 25 years. With standard repayments, you pay less towards your loan over time.
For most student borrowers the best income-based repayment plan is revised pay as you earn. All direct student loan borrowers are eligible and it offers the lowest payment compared to the other income-based payment options. You’ll also appreciate that there are no date restrictions or income restrictions.
Any remaining balance on your student loans after 25 years will be forgiven. But there are procedures to this. You can get loan forgiveness if you work in public service or by making payments through income-contingent plans. You may be eligible for forgiveness sooner if:
- The school closed during your studies
- You are permanently disabled
- In the event of identity theft
- If the school fails to refund required loans to the lender
One of the major benefits of income-based repayments is that they can lower your monthly payments. It’s also an excellent repayment option if you’re unemployed. For this type of repayment plan, the loan can be forgiven after 20 to 25 years on your remaining balance. This loan forgiveness will be tax-free.
We hope you found the best student loan repayment plan for your requirements in our guide.