Repayment Plans for Federal Student Loans

December 26, 2023

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If you borrowed federal student loans, loan repayment may be just around the corner — either after your 6-month grace period is over or after residency. Fortunately, you have options, so select the repayment plan that works best for you and meets your financial goals.

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Reviewing Your Repayment Options

Select a plan that provides a manageable payment, but keep in mind that the longer it takes you to repay your loan, the more expensive the loan may be. Aim for a repayment schedule that allows you to meet your financial needs and goals. If your financial situation changes, you may be able to change your repayment plan. Contact your loan servicer(s) to find out what options are available for you. Review repayment scenarios based upon your loan portfolio with the AAMC MedLoans® Organizer and Calculator.

When Will Repayment Start?

About 30 to 60 days before your first payment is due, you’ll receive a notice from your loan servicer(s) notifying you of your loan’s due date, the payment amount, information about interest rates, and your total outstanding balance. Be sure your loan servicer(s) have your current contact information because whether you receive a billing statement or not, the servicer requires that your payments be received on time each month. Set up an online account with your servicer(s) so that you can better manage your loans. Borrowers who select auto debit of payments will receive a .25% interest deduction. To learn more, review these Next Steps in the Guide to Money Management and Student Loans.

Types of Repayment Plans

There are two types of repayment plans — Traditional and Income-Driven Repayment (IDR) plans. Traditional repayment plans base the borrower’s monthly payment on how much was borrowed and the plan’s repayment term.

IDR plans base the borrower’s monthly payment on discretionary income and household size information. For more information about both types of repayment plans, visit the Federal Student Aid (FSA) website.

Traditional Repayment Plans

Standard Repayment
  • Fixed monthly payment. 
  • 10-year repayment term.
  • Default plan if no other plan is chosen.
Extended Repayment
  • Reduced payments stretched over a longer term (without consolidating).
  • 25-year repayment term; to be eligible, must owe more than $30,000.
  • May be more costly because of longer term and total interest paid.
Graduated Repayment
  • Starts with initially smaller payments, but payments will increase every two years.
  • 10-year repayment term (longer if consolidated).
  • May result in higher costs compared to the Standard plan.
Income-Driven Repayment (IDR) Plans
SAVE (Saving on a Valuable Education)

This plan went into effect in August 2023 and is for Direct Loan borrowers only.  Full implementation of plan details is expected by July 2024. SAVE replaces the Revised Pay As You Earn (REPAYE) plan. Borrowers currently enrolled in REPAYE will be automatically transitioned to SAVE. The benefits of the SAVE plan include:   

  • Elimination of monthly interest if the borrower’s monthly payment doesn’t cover the accrued interest.
  • Payment for graduate/professional students is based on 10% of discretionary income; payment for borrowers that had loans for undergraduate and graduate programs will be based on a weighted average of between 5% and 10% of discretionary income.

  • Up to a 25-year repayment term; plan forgiveness is available if a borrower reaches the end of the term and has a remaining loan balance.  Amount forgiven is taxable.

  • SAVE is an eligible repayment plan for the Public Service Loan Forgiveness (PSLF) program.

  • Borrowers can exclude spousal income from payment calculation if borrower files taxes separately from their spouse.
PAYE (Pay As You Earn)

This plan will no longer be available after July 1, 2024. Current features include:

  • Monthly payment capped at 10% of borrower's income annual discretionary income (based on family size and Adjusted Gross Income or AGI).
  • While in this plan, capitalization cannot exceed 10% of the loan balance when entering the plan.
  • Partial Financial Hardship (PFH) is needed to qualify to enter the plan.
  • Up to a 20-year repayment term. If balance remains at the end of the term, balance is forgiven; however, amount forgiven is taxable.
  • Must be a new borrower on or after 10/1/2007 and have a Direct Loan disbursement on or after 10/1/2011.
ICR (Income-Contingent Repayment) 

This plan will no longer be available after July 1, 2024. Current benefits include:

  • Offers monthly payment based on discretionary income and family size.
  • Interest accrues annually but capitalization of unpaid interest is limited to 10% of the loan balance when entering ICR.
  • Payments based on the lesser of either 20% of monthly discretionary income or a monthly payment on a 12-year plan times a percentage factor based on income.
  • Up to a 25-year repayment term. If balance remains at the end of the term, balance is forgiven; however, amount forgiven is taxable.
  • Verification of income and household size information is required annually.
  • Partial Financial Hardship (PFH) is needed to qualify to enter the repayment plan.
IBR (Income-Based Repayment)

IBR and the SAVE plan will be the only two IDR plans available after July 1, 2024.

Loans Borrowed Before 7/1/2014 Loans Borrowed on or After 7/1/2014
Payment “caps” at 15% of borrower’s discretionary income. Payment “caps” at 10% of borrower’s discretionary income.
Up to 25-year repayment term. If borrower reaches the end of the term and a balance remains, the remaining balance will be forgiven but is taxable. Up to a 20-year repayment term. If borrower reaches the end of the term and a balance remains, the remaining balance will be forgiven but is taxable.
  • Monthly payment based on annual verification of discretionary income and family size.
  • Partial Financial Hardship (PFH) is needed to qualify to enter the IBR repayment plan. 
 

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