44.2 million Americans are working through student debt right now. This debt adds up to $1.26 trillion. It’s safe to say not everyone can take advantage of college saving plans to the degree that’s necessary to cover all higher education costs. For the millions of Americans who need student loan repayment plans, there are a few different options. It’s beneficial to get a broad understanding of all of the options available for repaying federal student loans.

Income-Driven Repayment Planscalculator and textbook on bed

Income-driven repayment plans require a percentage of your discretionary income. You can apply for them with the Department of Education and based on the repayment plan you choose, a certain percentage of your discretionary income will be required as payment each month. You must reapply every year with updated income and family size information which may cause a change in your monthly payment requirements.

Pay as You Earn Repayment Plan

Most of the time, the Pay as you Earn Repayment Plan requires about 10% of your monthly income, but no more than 15%. The plan continues for up to 25 years. If you make regular payments, once the 25 years have ended, any debt that is left will be forgiven. The forgiven debt is eligible for taxation after the 25 years.

Revised Pay as You Earn Repayment Plan

The Revised Pay as you Earn Repayment Plan works like a Pay as you Earn Repayment Plan, but the repayment period is 25 years if any loans you’re repaying were received for graduate or professional study, but 20 years if the loans were used for undergraduate study.

Income-Based Repayment Plan

Through an Income-Based Repayment Plan, new borrowers pay around 10% of their monthly income, and returning borrowers pay 15%. The repayment period is 25 years before the debt is forgiven.

Income-Contingent Repayment Plan

Through the Income-Contingent Repayment Plan, you pay the lesser of either 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years adjusted according to your income.

Basic Repayment Plans

Basic repayment plans do not depend on your income. Standard, graduated, and extended plans are available, and you do not have to reapply each year.

Standard repayment plan

If you do not indicate that you prefer a graduated or extended plan when you apply for a basic repayment plan, you will be set up with a standard plan. Payments of at least $50 per month are required for 10 years. This plan gets debts paid back more quickly than other plans by requiring higher monthly payments. Paying more each month results in your paying less interest overall.

Graduated repayment plan

With a graduated student loan repayment plan, payments start low and increase every two years for 10 years. You will pay more interest through this plan than a standard repayment plan, but less than an extended plan. The graduated repayment plan is a good choice if you can’t handle large monthly payments now, but are confident your income will increase in the future.

Extended repayment plan

Over 25 years, an extended repayment plan will set you up to pay off your student loans in small monthly payments. You must have at least $30,000 in Direct Loans or Federal Family Education Loans to use the extended plan.

Learn How to Manage Your Personal Wealth while Repaying Student Loans

Book a free consultation with Alpha Omega Wealth to learn how to manage your personal wealth well. The knowledge available to you from our office can lead you to paying off your debt more quickly and growing your wealth in a way that will allow you to save for your children’s higher education early to reduce or eliminate their need for student loans.