It’s no secret that many college graduates struggle to repay their student loans. A competitive job market, low starting salary, and new living expenses can make the standard 10-year federal student loan repayment plan difficult, if not impossible, to follow.

Fortunately, the federal government offers seven additional repayment plans to help ease the pressure on the budgets of new graduates.

Below, I explain the eight federal student loan repayment plans, the types of loans eligible for each, and why you may or may not consider them.

Standard repayment plan

Eligible loans: Subsidized and Unsubsidized Direct Loans, Federal Stafford Loans (Subsidized and Unsubsidized), Direct PLUS Loans, All Consolidation Loans.

The standard repayment plan is the default repayment plan that everyone federal student loan borrowers are awarded unless they contact their loan manager and request to change their repayment plan to one of the other options listed below. All loans and borrowers are eligible for the Standard Repayment Plan, which requires you to pay a fixed monthly amount over 10 years, or within 10 to 30 years if you have consolidated your federal student loans.

If you want to pay off your student loans quickly, this is your best option. It has the shortest repayment term and generally results in the lowest overall costs. But the standard repayment plan has a higher monthly payment than other repayment plans, so it may not be achievable if your budget is tight.

It is also not your best option if you intend to continue. Public Service Loan Discount (PSLF). To be eligible for the PSLF, you must work for an eligible organization providing a public service and make 120 student loan payments on time. But if you made 120 payments on the standard repayment plan, there wouldn’t be any amount to remit at the end. So, if you are intending to pursue PSLF, you had better go for an income-based repayment plan, which will lower your monthly payments and leave some of it after the 10 years to forgive.

Progressive repayment plan

Eligible loans: Subsidized and Unsubsidized Direct Loans, Federal Stafford Loans (Subsidized and Unsubsidized), Direct PLUS Loans, All Consolidation Loans.

The graduated repayment plan also has a repayment term of 10 years, but it is structured a little differently. Instead of a fixed monthly payment for the life of the loan, you will start with a lower monthly payment that will increase every two years. The idea is that you will pay less at the start of your career and later when your salary is likely to be higher. All federal student loans qualify for the phased repayment plan and the loan term can be extended up to 30 years for consolidation loans.

While you will always pay off your entire balance within 10 years, you will pay more than with the standard repayment plan overall, as your smaller upfront payments won’t reduce your principal as quickly, which will allow interest to accumulate more quickly. This plan is also not a qualifying repayment plan for PSLF, so don’t choose this if you intend to request a loan forgiveness.

Extended repayment plan

Eligible loans: Subsidized and Unsubsidized Direct Loans, Federal Stafford Loans (Subsidized and Unsubsidized), Direct PLUS Loans, All Consolidation Loans.

The extended repayment plan extends your loan repayments over 25 years. All federal student loans qualify for the extended repayment plan as long as the borrower has $ 30,000 or more in unpaid federal student loans. You can choose a fixed or progressive payment schedule, whichever best fits your budget.

Your monthly payments will be lower with the extended repayment plan than with either of the plans mentioned above, but you will pay more overall. It is also not a qualifying repayment plan for PSLF.

Repayment plan revised as you earn (REPAYE)

Eligible loans: Subsidized and unsubsidized direct loans, direct PLUS loans to students, consolidation loans to students.

The REPAYMENT plan extends the term of your loan to 20 years or to 25 years if you have taken out loans for your graduate studies. Your monthly payments are capped at 10% of your discretionary income, which is the difference between your annual income and 150% of the poverty line for your state and the size of your household. If you are married, your income and that of your spouse are taken into account in the calculation, even if you file your taxes separately. Your monthly payment may be more than what you would pay with the standard repayment plan, or it may not be. Your loan manager will recalculate the amount of your payment each year to take into account your family details and your most recent income.

If you haven’t finished repaying the loan at the end of the 20 or 25 year period, the government will write off any remaining balances. However, this will add the remitted amount to your taxable income for that year, which could increase your tax bill. The exception is if you are eligible for the PSLF. In this case, you will not owe taxes on the amount remitted.

Parents who take out student loans for their child’s education cannot switch to the REPAYMENT plan, even if they consolidate their student loans.

Pay As You Earn (PAYE) reimbursement plan

Eligible loans: Subsidized and unsubsidized direct loans, direct PLUS loans to students, consolidation loans to students.

The Pay As You Earn (PAYE) plan is similar to the REPAYE plan, but there are a few key differences. First, while your monthly payments can be up to 10% of your discretionary income, they are guaranteed not to exceed what you would pay with the standard repayment plan. Second, if you are married, your loan manager will only take your spouse’s income into account when determining your monthly payments if you have filed common taxes. Third, your loan term will be 20 years, and there is no option to extend it to 25 years if you have graduate student loans.

The eligibility conditions for the PAYE plan are also somewhat stricter. Parents cannot switch to the PAYE plan, and students cannot either, unless they received a federal loan on or after October 1, 2007 and received a federal student loan disbursement on or after October 1. 2011. You must also have a relatively high debt-to-income ratio – that is, your federal student loan debt must be greater than your annual discretionary income or it must represent a significant portion of your annual income.

Income Based Repayment Plan (IBR)

Eligible loans: Subsidized and Unsubsidized Direct Loans, Federal Stafford Loans (Subsidized and Unsubsidized), Student Direct PLUS Loans, Student Consolidation Loans.

The IBR plan also bases your monthly payments on your discretionary income. If you received a student loan on or after July 1, 2014, your payments are capped at 10% of your discretionary income, while they could be as high as 15% for federal student loans issued before that date. Either way, you’ll never pay more than what you would pay under the standard repayment plan. You must have a relatively high debt-to-income ratio to be approved, and your loan manager will recalculate your payments each year. It will also take your spouse’s income into account if you are filing taxes jointly.

There is a 20-year repayment term for loans issued after July 1, 2014, and a 25-year repayment term for loans issued before that date. If you have not paid off the entire balance at the end of this period, the government will write off the remaining amount, but it will be added to your taxable income for the year, unless you are eligible for the PSLF.

Income-Based Repayment Plan (ICR)

Eligible loans: Subsidized and Unsubsidized Direct Loans, Direct PLUS Student Loans, Consolidation Loans.

The Income Based Repayment Plan (ICR) is the only income based repayment plan that is available to parents with Direct PLUS loans. However, they must consolidate their loans to be eligible. Under this plan, you will pay the lesser of 20% of your discretionary income – which in this case is considered the difference between your annual income and 100% of the poverty line for your condition and your family size – or the amount you would pay on a 12-year fixed repayment plan, adjusted for your income. Each year, your loan manager recalculates your loan payments based on your updated income and family information, and if you are married, they will also consider your spouse’s income, unless you file taxes separately. .

This repayment plan has a loan term of 25 years, and the government will write off any remaining balance after that period, although it will add it to your taxable income for the year, unless you qualify for the PSLF.

Income-based repayment plan

Eligible loans: Federal Stafford loans (subsidized and unsubsidized), Federal Family Education Loans (FFEL) PLUS, FFEL Consolidation Loans.

This repayment plan is only available to those who have federal student loans issued by the Federal Family Education Program (FFEL). The FFEL program was discontinued on July 1, 2010, so new borrowers will instead have to choose from one of the seven plans listed above.

Under this plan, you have the freedom to choose your monthly payment for the first five years, although you must pay at least the amount of interest that accumulates each month, and you must pay off your total balance within 15 years. However, if you choose a low payout for the first five years, your payouts could go up dramatically afterwards and you might have a hard time keeping up with them.

How to Choose the Right Federal Student Loan Repayment Plan for You

To find the right federal student loan repayment plan for you, go through the list above and rule out any repayment plans your loan does not qualify for. Next, determine which of the remaining options best suits your goals. If you want to pay off your loans quickly, a shorter repayment term is better. But if you want lower monthly payments now, a longer repayment term is better. If you’re trying the PSLF, be sure to choose a PSLF-eligible repayment plan.

Speak with your student loan manager if you’re not sure which repayment plan is right for you or which would offer the lowest monthly payment. You can find your loan manager and contact information by logging into your My federal student aid Account. You can also try the Ministry of Education Reimbursement Estimator Calculator.

You are free to change your repayment plan at any time, and there is no charge. But before you do so, think carefully about the implications of your decision. A lower payment might give you more leeway today, but it could cost you more in the long run.