Figuring out how to pay back student loans can be a daunting task, especially for borrowers struggling to balance repayment with other financial priorities. The good news is federal student loan borrowers have options when it comes to managing loan payments. There are several repayment plans to choose from, each with different terms, eligibility criteria, and implications for your overall costs.
The key is finding the right plan to fit your current and future financial situation. And as circumstances change, you may need to switch plans accordingly. This guide covers the ins and outs of selecting, changing, and qualifying for various student loan repayment plans. Read on to understand the flexible options at your disposal.
Overview of Federal Repayment Plans
All federal student loans, including Direct Loans and certain Federal Family Education Loans (FFEL), are eligible for numerous repayment plans offered by the Department of Education. These plans are designed to make payments more affordable and flexible for borrowers.
The main categories of repayment plans include:
- Standard Repayment – Fixed monthly payments for up to 10-30 years.
- Graduated Repayment – Payments start low and increase gradually over time. Up to 12-30 years term.
- Extended Repayment – Fixed lower monthly payments over a longer 12-30 year timeframe.
- Income-Driven Repayment (IDR) – Monthly payments are capped at a percentage of discretionary income. Multiple IDR options with 20-25 year terms.
Most federal loan borrowers are automatically placed on the Standard 10-Year Plan but can switch plans at any time if they qualify. The various alternatives allow borrowers to find the right balance between affordable payments today and minimizing interest costs over the life of the loan.
Private student loans typically have less flexibility. Always check with your private lender on repayment options as they can vary. The rest of this guide focuses specifically on federal student loan repayment plans.
Qualifying Conditions for Repayment Plan Changes
Changing repayment plans sounds simple enough but there are important qualifying factors borrowers must meet for eligibility. Here are key considerations:
- Loan Status – Your loans cannot be delinquent or in default. You must be up-to-date on payments on existing plans before switching.
- Loan Types – Most income-driven plans only apply to Direct Loans. FFEL loans need to be consolidated first. Private loans have separate rules.
- Income Eligibility – To qualify for plans with reduced payments, you must provide proof of income such as tax returns.
- Timing – Plan changes are typically allowed during annual renewal periods. Outside this window, you need a “qualifying life event.”
Let’s explore these requirements in more detail:
Keeping Loans Current
The first criteria is that your loan account must be in good standing to qualify for repayment plan changes. This means you cannot be delinquent or have any overdue payments. Loans in default are also ineligible until you resolve the default status, usually by bringing the account current, consolidating loans, or rehabilitating defaulted loans.
Staying current on payments ensures seamless transitions between plans without any gaps in coverage or issues processing the new terms. Make sure to pay at least the minimum due every month on existing plans before submitting a plan change request.
Loan and Balance Eligibility
Depending on the repayment plan you want to switch to, your loan types and balances must meet certain requirements:
- Income-driven plans – Most income-driven repayment plans, including PAYE, REPAYE, and IBR, are limited to Direct Loans. If you have FFEL loans, you would need to consolidate them into a Direct Consolidation Loan first before qualifying for these plans.
- Older FFEL loans – Some repayment plans like Graduated and Extended only apply to FFEL loans first disbursed before specific dates in 2006. Check with your servicer on eligibility.
- Private loans – Private student loans have their own rules regarding changes to repayment terms. Contact your lender directly to discuss options.
- Aggregate limits – For certain plans like Extended Repayment, you must have more than $30,000 in total Direct and FFEL loan debt to qualify.
Carefully review the loan eligibility criteria for any new repayment plan you wish to switch to in order to determine if your particular loan portfolio would qualify.
One of the main benefits of income-driven repayment plans is the reduced monthly payments tied to your discretionary income. But to qualify for this payment relief, you must provide proof of income, such as:
- Recent tax returns
- W2s or pay stubs
- Documentation of unemployment, disability, or other relevant status
Based on your income and family size, your servicer will calculate the payment caps under the plan you select. You must recertify this information each year to adjust payments accordingly. Failing to provide updated income documentation could lead to payment delays or disqualification.
Timing Your Plan Changes
Outside of specific circumstances, repayment plan changes are limited to set windows each year. Here is how and when you can submit a request:
- Annual renewal periods – Most plan changes happen during your renewal period which starts 60-90 days before the new annual payment cycle. This is when you recertify income and family size.
- Major life events – If you experience a substantial change in circumstances outside the renewal time, such as loss of job, you may qualify for off-cycle plan changes by providing documentation.
- Loan servicing transfers – When your servicer changes, you get a 60-day window to switch plans even if not during renewal.
- Leaving school – Students who recently graduated get a 6-month grace period before payments start, giving time to select a repayment plan.
Overall, plan to submit plan change requests 1-2 months in advance of when you hope the new terms to take effect. Processing times vary. During renewal periods, a flood of requests can lead to delays so request early. For off-cycle changes, provide all required income and event documentation.
Review of Standard Repayment Plan Options
If your goal is to pay off loans quickly and you can afford higher monthly payments, one of the standard repayment plans may be right for you. Let’s compare the main options:
Standard 10-Year Plan
This is the default repayment plan all federal borrowers start on if they do not select an alternative. It provides the following terms:
- Fixed monthly payments for 10 years (120 payments total)
- Payments are calculated to pay off interest plus a portion of principal each month
- Results in the lowest total interest paid compared to other plans
- Best option if you can manage higher monthly payments
- Limited payment relief if you face financial difficulties
This plan works well for borrowers with smaller balances who want to be aggressive and repay loans fast. The 10-year clock starts from the time loans first enter repayment status after any grace period.
Extended Repayment Plan
Need more time to pay off loans? The Extended Plan stretches out payments over 12-30 years depending on your total federal loan balances:
- 12 years for balances under $60,000
- 25 years for balances over $60,000
- Smaller fixed monthly payments by extending the term
- Makes payments more affordable month-to-month
- You pay more interest over the full repayment term
- To qualify, you must have over $30,000 in federal loan debt
This serves as an alternative to the 10-year Standard Plan for borrowers who need reduced monthly payments. Just be aware you trade that relief for higher total repayment costs over the long haul due to accumulating interest charges.
Graduated Repayment Plan
If you need temporary payment relief but can afford higher payments later as your career progresses, the Graduated Plan starts payments low and gradually increases them every two years over a 10-25 year term.
- Payments adjust to as much as triple the initial amount before leveling off
- Results in significantly higher interest costs over the life of the loan
- Provide short-term flexibility for the first few years after graduating
- Useful if incomes rise substantially after schooling
Carefully weigh the long-term interest tradeoffs before opting for this plan. Project your future earnings to see if and when the larger graduated payments would become comfortable.
Overview of Income-Driven Repayment Options
For borrowers facing financial hardship or modest incomes compared to loan balances, income-driven repayment (IDR) plans offer the most flexibility. These plans tie monthly payments to your discretionary income and provide forgiveness after 20-25 years.
The main IDR plans include:
- Revised Pay As You Earn (REPAYE) – 10% of discretionary income. Forgiveness after 20 years (undergraduate loans) or 25 years (graduate loans).
- Pay As You Earn (PAYE) – 10% of discretionary income. Forgiveness after 20 years. Only for new borrowers as of Oct 2007.
- Income-Based Repayment (IBR) – 10-15% of discretionary income based on when you borrowed. Forgiveness after 20-25 years- Income-Contingent Repayment (ICR) – 20% of discretionary income or what you would pay on a 12-year Fixed Plan, whichever is less. Forgiveness after 25 years.
Let’s explore the pros and cons of each IDR plan:
Revised Pay As You Earn (REPAYE)
Introduced in 2015, REPAYE has become the most comprehensive income-driven plan available today. Benefits include:
- Most borrowers pay 10% of discretionary income (income minus 150% of poverty level for family size).
- Monthly payments can be as low as $0 if you’re unemployed or have low income.
- Interest subsidy pays half of unpaid interest on subsidized loans for first 3 years and any unpaid interest after on all loans.
- Best option for those with high debt-to-income ratios.
- Ideal for public service workers seeking loan forgiveness under PSLF program after 10 years as payments count regardless of IDR plan.
Watch outs with REPAYE:
- Spousal income included in payment calculation regardless of how you file taxes.
- Any graduate school debt extends the forgiveness timeline to 25 years.
Overall, REPAYE provides the most payment flexibility and interest protections of any current IDR plan. It offers borrowers with high balances relative to incomes the best safety net.
Pay As You Earn (PAYE)
PAYE was the first income-driven plan starting in 2007. It shares similarities with REPAYE but with stricter eligibility rules:
- Must be a new borrower as of Oct 1, 2007. Prior loans don’t qualify.
- Forgiveness after 20 years. No grad school extension.
- No spousal income inclusion. Based only on your income if filing taxes separately.
- Better option than REPAYE for borrowers with only undergraduate loans or with spouses with high incomes.
PAYE serves a narrower band of borrowers than REPAYE. But for those who qualify, it remains an attractive income-driven option with competitive benefits.
Income-Based Repayment (IBR)
IBR was the original income-driven repayment plan starting in 2009. It takes the following approach:
- Monthly payments capped at 10% (if borrowed after July 2014) or 15% (if prior to July 2014) of discretionary income.
- Forgiveness eligibility starts after 20 years (if borrowed after July 2014) or 25 years (if prior)
- Available for both undergraduate and graduate loans
- Spousal income is only included if you file taxes jointly.
The main advantage of IBR is that it allows more types of federal loans to qualify including FFEL loans. It provides a viable path to loan forgiveness for both undergraduate and graduate debt.
Income-Contingent Repayment (ICR)
ICR is the only income-driven plan available for Parent PLUS loans. Features include:
- Payments capped at lesser of 20% of discretionary income or what you would pay on a 12-year Fixed Plan.
- Forgiveness after 25 years of qualifying payments.
- Available for Direct and FFEL loans.
- Spousal income is included regardless of tax filing status.
This plan meets the needs of PLUS borrowers seeking income-driven benefits. The payment cap is higher than other IDR options but remains manageable.
How to Apply for a Repayment Plan Change
Ready to switch repayment plans? Here is a step-by-step guide:
- Contact your servicer: Call or login online to inform them you want to change plans. Understand any eligibility requirements for new plan.
- Complete application: Forms available on StudentAid.gov or from your servicer. Print, sign, and return form.
- Submit income documentation: Provide tax returns or income certification to validate payment amounts under new plan.
- Make first payment: Once approved, begin making payments under new repayment plan terms.
- Recertify income annually: To adjust payments each year, submit updated income docs during renewal period.
It can take 15-60 days to process a repayment plan change request depending on servicer workload. Avoid gaps in payment coverage by submitting forms 1-2 months before you hope new terms to begin. Set calendar reminders for annual recertification deadlines.
For off-cycle changes due to major life events, submit all supporting documentation with forms to expedite processing and qualification. Track status regularly until approved.
Key Takeaways on Changing Repayment Plans
Here are some key tips to remember:
- Review all plans annually to find the optimal terms as income and needs evolve.
- Jump on renewal periods each year to switch plans hassle-free.
- Act promptly if your financial situation changes substantially to align payments.
- Make sure loans qualify before applying and provide all required income documentation.
- Don’t wait until an emergency like job loss to evaluate options—be proactive.
- Weigh long-term tradeoffs between lower monthly payments today and total interest costs.
- An income-driven plan offers the best safety net if temporarily unemployed or low income.
- Standard plans maximize savings if you can afford more aggressive payoff schedules.
No single repayment solution is right forever. Revisiting your options regularly ensures you find the ideal plan for each stage of life. Don’t settle for the status quo—capitalize on the flexibility at your disposal.
Frequently Asked Questions (FAQ)
1. How often can I change my repayment plan?
You are allowed to change plans once per calendar year during the renewal period. Additional changes require a qualifying life event. Exceptions include when loans transfer between servicers or when leaving school.
2. Will changing plans restart my progress toward forgiveness?
It depends. Switching between income-driven plans resets the clock. Moving from standard to IDR plans or vice versa saves your progress. PAYE and IBR have some exceptions too.
3. What happens to my monthly payment when I change plans?
The payment will change to match the new terms of the plan you select. It could go up or down depending on factors like extending the repayment term or basing payment on income.
4. Can I switch back to my old repayment plan if I don’t like the new one?
Yes, you can revert back to your prior repayment plan or choose another one. The same eligibility rules apply including being current on payments and providing income documentation.
5. How do I know if I would benefit from changing repayment plans?
Analyze your finances annually to see if payments are comfortable and if you can pay off loans aggressively. Use the loan simulator on StudentAid.gov to project different scenarios. Contact your servicer if you need guidance.