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Student loan repayment process: Everything you need to know

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There are more than 43 million Americans currently in student loan debt, with the average public university student graduating with more than $30,000 in debt, according to

Whether you’re graduating soon or want to get ahead, here are a few things to keep in mind before starting your student loan payoff.

Repaying your student loans

When you repay your student loans, you’ll be paying back both the principal balance (what you borrowed initially) and any interest that accrues on that balance. Most loans don’t require any payments until at least six months after you graduate or drop below half-time enrollment, but from there you’ll need to make regular monthly payments.

With federal student loans, you might be automatically enrolled in the standard repayment plan set to complete repayment in 10 years. But there are plenty of other types of plans available, with repayment terms up to 25 years. Private student loans offer their own plans, generally ranging from five to 15 years.

If you want to pay less interest, you’ll need to complete student loan repayment as soon as possible. The standard repayment plan for federal loans is one of the fastest ways to pay off your loans, or you could refinance into a private loan to pay off your loans sooner. Just keep in mind that this will raise your monthly payments, since you’re compressing your repayment timeline.

If you want lower monthly payments, you can choose a longer repayment timeline or enroll in a federal income-driven repayment plan. These are only available to federal student loan borrowers, but they base your monthly payment on your income and family size. They’ll keep monthly payments as low as you can afford, but it’ll take you longer to pay off your loans: 20 to 25 years.

Federal student loan repayment

Most undergraduate students in the United States have either subsidized or unsubsidized federal loans.

For subsidized loans, the government pays the interest for you while you’re in school, during your six-month grace period after graduation and while your loan is in deferment. For unsubsidized federal loans, you’re responsible for the interest that accrues as soon as funds are disbursed, though you can choose to defer payments until after graduation. In that case, any loan interest that accrues would be added to your total loan balance.

Federal loans don’t require a co-signer and are put on the standard repayment plan by default.

3 federal student loan repayment plans

There are three main options to choose from when it comes to repaying your federal student loans: the standard repayment plan, alternative repayment plans and income-driven repayment plans.

1. Standard repayment plan

A standard repayment plan divides your total student debt equally across a 10-year term. This option makes loan payments predictable, saves you more money over time and gets you out of student debt fastest.

Eligible loans: Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Stafford Loans, PLUS loans and all consolidation loans.

Time frame: 10 years; up to 30 years for Direct Consolidation Loans.

Takeaway: If you can afford higher monthly payments when you graduate, a standard repayment plan is the most affordable long-term option.

2. Alternative repayment plans

In addition to the standard repayment plan, there are also graduated and extended plans. A graduated repayment plan starts you out with small payments that slowly increase over time, with payment completion after 10 years. An extended repayment plan lets you repay your loan balance over 25 years.

Eligible loans: Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Stafford Loans, PLUS loans and all consolidation loans.

Time frame: 10 or 25 years; up to 30 years for Direct Consolidation Loans.

Takeaway: These plans might be useful if you don’t have a high-paying job immediately out of school but expect to earn more as you establish your career; however, you’ll ultimately pay more over time than with other plans.

3. Income-driven repayment plans

Federal loan borrowers can also choose among four income-driven repayment (IDR) plans, which revise your monthly student loan payments based on your income and family size:

  • Pay As You Earn Repayment Plan (PAYE Plan). With a PAYE plan, your monthly payments will amount to 10 percent of your discretionary income over 20 years. Your payments will never be more than your payments on the standard plan.
  • Revised Pay As You Earn Repayment Plan (REPAYE Plan). Under REPAYE, your monthly payments are reduced to 10 percent of your discretionary income. Your repayment is also extended to a 20- or 25-year term.
  • Income-Based Repayment Plan (IBR Plan). For IBR plans, your payments are set at 10 percent to 15 percent of your discretionary income. Your repayment term is either 20 or 25 years, depending on when you took out the loan.
  • Income-Contingent Repayment Plan (ICR Plan). The ICR plan keeps monthly payments to 20 percent of your discretionary income or the payment amount under a standard plan for 12 years (adjusted to your income) — whichever is less. This plan is available for a 25-year term.

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

Time frame: 20 or 25 years.

Takeaway: If you don’t have a steady income, it may be best — at least in the short term — to choose an IDR plan. You’ll also need to get on an IDR plan to pursue federal student loan forgiveness programs, like Public Service Loan Forgiveness.

Private student loan repayment

Private student loans are provided by private financial institutions. Eligibility requirements, terms and rates vary by lender. Private student loans also require a credit check or co-signer with strong credit. Unlike federal loans, private loans aren’t required to offer borrower protections (such as deferment or forbearance options), so you will have to contact your lender directly for options if you’re having trouble paying your loans.

Ways to repay your private student loans

Unlike federal student loans, private student loans don’t have a standard student loan repayment process. However, they may have unique student loan repayment plans that other lenders don’t offer.

For instance, some private lenders require you to start repayment as soon as funds are disbursed, while others let you make interest-only payments while in school or defer any payments until you leave school. Others may give you the option to pay interest plus a small monthly payment — like $25 — while you’re in school in order to begin chipping away at your balance early.

When planning your private student loan payoff, it’s best to speak to your lender directly to learn more about your loan repayment options and decide which makes the most sense for you.

What happens if you’re having trouble paying your student loan?

When something unexpected arises — like an unplanned job loss or sudden medical expenses — staying on top of your student loans can be difficult. In these situations, missing a payment due date will put your loan account into delinquency until the past-due debt is paid.

Accounts that are delinquent by 90 days or more are reported to the three credit bureaus, which adversely affects your credit. Borrowers who are experiencing financial hardship for any reason are encouraged to reach out to their student loan servicer or lender.

If you’re having trouble paying for federal student loans, your servicer can explain your options to help make payments more manageable. This can be through either an IDR plan — which can result in a monthly payment as low as $0, depending on your income — or deferment or forbearance, where you temporarily stop making payments.

Although private student loans don’t offer the same hardship benefits as federal loans, it’s still important to reach out to your lender to learn about its case-by-case hardship programs. Working with your lender on a manageable repayment plan as early as possible can help you minimize further financial challenges later on.

Student loan repayment in the coronavirus pandemic

During the COVID-19 crisis, the federal government has temporarily suspended payments, instituted 0 percent interest charges and stopped collections on defaulted loans. If you currently have federal student loans, you’re not required to make any payments during this emergency measure.

The temporary relief goes through Aug. 31, 2022. If you can’t afford to make payments, you don’t need to reach out to your lender. It’s automatically set up through the Department of Education for all federal student loans.

If you’re on track for Public Service Loan Forgiveness (PSLF), the suspended period won’t have an impact on your progression unless you no longer meet the regular eligibility requirements. Even if you didn’t make qualifying payments during the emergency relief, you’ll get credit as if you did, so your timeline is still intact.

If you have private student loans, reach out to your lender to see what sort of relief options are available. Many have instituted COVID-19 hardship programs, but these vary by lender.  Your eligibility is also determined by your lender.

President Joe Biden has also floated the idea of $10,000 student loan forgiveness for federal borrowers as part of coronavirus relief; however, as of yet, none of these proposals have made it through Congress.

What happens if you never pay your student loans?

If you never pay your student loans, you will go into default. For most federal student loans, you’ll default after 270 days of nonpayment, although loan servicers may declare a Perkins loan defaulted if it’s not paid by the due date. For private lenders, the time frame may vary.

The default is reported to credit bureaus, and your credit score will drop. This mark on your credit report makes it harder to borrow future credit, like a credit card or auto loan. It also makes you ineligible for additional federal financial aid.

Your wages can also be garnished, and lenders might send your loans to collections or take legal action. If you default on federal loans, you’ll lose protections like deferment and forbearance, and the entirety of your unpaid balance will immediately become due.

Next steps

There are a few factors to consider when deciding on a student loan repayment plan, including whether or not you have a job lined up after graduation, the dollar amount of your loans and more.

Here are some additional tips as you plan for the student loan repayment process:

  • Make interest payments. If you have the option and can afford it, start making interest payments immediately. Doing so avoids compound interest — in other words, paying interest on your unpaid interest. Even chipping away little by little while you’re in school can help you once you graduate.
  • Consider deferment or forbearance. If you’re facing financial hardship and can’t make your loan payments, reach out to your lender about deferment or forbearance. This lets you temporarily pause or lower your monthly payment for a period of time. You may still accrue interest on your loans.
  • Refinance your student loans. Refinancing your student loans can help lower the cost of your debt in the long run by lowering your interest rate. However, be aware that if you refinance federal loans, you’ll have to use a private lender, meaning you’ll lose benefits like income-driven repayment, forbearance and loan forgiveness options. You can’t switch back to a federal loan once you’ve refinanced.

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Written by
Jennifer Calonia
Contributing writer
Jennifer Calonia is an L.A.-based writer and editor. She's covered topics like debt, saving money and credit cards. You can find her work on Business Insider, Forbes and more.
Edited by
Student loans editor