What are the most common Repayment Plans?
Federal student loan repayment plans include the Standard, Extended, Graduated, Income-Based, Pay As You Earn, REPAYE, and Income-Contingent plans. If you currently have Federal Student Loans, you may be eligible to switch your repayment plan to one of several federal student loan repayment plans. You can find a brief explanation of each below:
Fixed Monthly Payments
Standard Repayment Plan
The Standard Repayment Plan (for non-consolidated loans) features fixed payments made for no more than 10 years. Having the shortest repayment period, the Standard Repayment Plan saves the borrower money over time because the borrower will pay the least amount of interest over the life of the loan.
Extended Repayment Plan
The Extended Repayment Plan allows borrowers to extend the repayment period for up to 25 years. Monthly payments may be fixed or graduated and are generally lower than those found in the Standard Repayment Plan and Graduated Repayment Plan.
Rising Monthly Payments
Graduated Repayment Plan
The Graduated Repayment Plan features lower initial payments that increase every two years. Similar to the Standard Repayment Plan, the repayment period is typically no more than 10 years.
Extended Graduated Repayment Plan
The Extended Graduated Repayment Plan features lower initial payments that increase every two years. This plan is similar to the Graduated Repayment Plan except the repayment period is for up to 30 years depending on the overall debt balance. Out of all the plans, it is easily the most expensive.
Income-Driven Monthly Payments
Pay As You Earn Repayment Plan (PAYE)
The PAYE plan sets the borrower’s monthly payment at 10% of discretionary income, but never more than the monthly payment under the Standard Repayment Plan. Under this plan, the borrower’s repayment period is 20 years.
Revised Pay As You Earn Repayment Plan (REPAYE)
The REPAYE plan sets the borrower’s monthly payment at 10% of the discretionary monthly income. Under this plan, the repayment period is 20 years if all the borrower’s loans were for undergraduate studies. If any loans were for graduate studies, the repayment period jumps to 25 years.
Income-Based Repayment Plan (IBR)
The IBR plan sets monthly payments at 10% (for new borrowers on or after July 1, 2014) or 15% of monthly discretionary income, but never more than the monthly payment under the Standard Repayment Plan.
Income-Contingent Repayment Plan (ICR)
The ICR plan sets monthly payments as the lesser of 20% of discretionary income or what would be paid under a repayment plan with a fixed payment over 12 years. Under this plan, the repayment period is 25 years.
If you are interested in seeing what plans you qualify for, please check out our Reassess tool in the FutureFuel.io dashboard.
Keep in mind that the American Rescue Plan Act of 2021 was signed into law on March 11, 2021 and caused some changes to certain repayment plans. Section 9675 of the bill includes a provision to make any student loan forgiveness passed between December 31, 2020 and January 1, 2026 tax-free.
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