Student Loan Repayment Plans Compared

The four families of plan

The standard plan splits your balance into fixed payments over ten years and is the default. Graduated repayment starts lower and steps up every two years over the same ten years. Extended repayment stretches the term to 25 years for larger balances, cutting the payment and sharply raising total interest.

Income-driven repayment sets the payment as a percentage of discretionary income, recalculated annually from your tax return and family size, with any balance remaining after the plan's term forgiven. It is the right answer when the standard payment is genuinely unaffordable or when you are working towards forgiveness.

How income-driven payments are calculated

Discretionary income is your adjusted gross income minus a multiple of the federal poverty guideline for your family size and state. The plan then charges a fixed percentage of that figure, so a borrower earning close to the poverty threshold can owe a very small payment, sometimes zero.

Recertify every year on time. A missed recertification pushes you back to a standard-equivalent payment and can capitalise accrued interest onto the principal, which permanently raises the cost of the loan.

Choosing between a low payment and low total cost

These two goals are in direct conflict. A lower monthly payment always means a longer term and more interest, unless the plan ends in forgiveness — in which case a lower payment is strictly better because the forgiven amount grows.

• Pursuing PSLF: choose the qualifying income-driven plan with the lowest payment and never overpay.
• Not pursuing forgiveness, comfortable payment: choose the standard plan and finish in ten years.
• Not pursuing forgiveness, tight budget: take income-driven now, and increase payments as income grows.
• High income, high balance, no forgiveness: compare refinancing to a lower private rate.

Switching plans and consolidation

You can change federal repayment plans at any time, free, through your servicer or studentaid.gov. There is no penalty and no credit check, which makes the decision reversible if your income changes.

A Direct Consolidation Loan combines multiple federal loans into one with a weighted-average interest rate. It can make older loan types eligible for income-driven plans and PSLF, but it resets progress towards forgiveness on existing loans, so check the trade-off carefully before consolidating.