Federal Student Loan Repayment Plans Explained

So you've graduated college, landed a job, and all is well – until you get a notice that your first student loan payment is due. Take a deep breath! With so many repayment options, it can feel overwhelming and hard to know which one is best for you. Don't worry – we're here to help guide your decision.

With Federal Student Loans there are two different categories of repayment plans: Basic and Income-Driven. Which plan you choose depends on your income and how much you want to pay in interest over time. Plans with lower monthly payments accumulate more interest and cost more over time, but those with a high income may not qualify for some income-driven plans.

Basic Repayment Plans

  1. Standard Plan – This is the default plan for all student loan borrowers. Your monthly payment is calculated based on full repayment in a 10-year period. This is ideal for people who have low balances or can afford higher monthly payments.
  2. Graduated Plan – Similar to the Standard Repayment Plan, except payments start smaller and increase every two years. If you're going into a field that will allow you to move up the ranks quickly and increase your pay over time, this could be a great option.
  3. Extended Plan – Lower monthly payments are spread over a longer period of time compared to the Standard Plan. Certain qualifications must be met to enroll in this plan.

Income-Driven Plans

  1. Pay as you Earn Plan – With this plan, your monthly repayment cannot exceed 10% of your discretionary income, and all debts are forgiven after 20 years. Certain qualifications must be met to enroll in this plan.
  2. Revised Pay as you Earn Plan – Similar to the Pay as you Earn Plan without the income and family size requirements. Almost all borrowers qualify for this plan.
  3. Income-Based Repayment Plan – IBR set your monthly payment to 15% of your discretionary income and all debts are forgiven after 25 years.
  4. Income-Contingent Repayment Plan - Monthly payments will be either 20% of your discretionary income or the amount you would pay based on a 12-year fixed payment plan, whichever is less. Outstanding balances are forgiven after 25 years.

Whichever plan you choose, be sure you are comfortable with the implications of a higher monthly payment or paying more in interest over time. Learn more about each repayment plan and see if you qualify, or contact a Personal Banker to discuss your options. 

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