4 Ways to Repay Federal Student Loans When You’re Struggling

Published: January 28, 2022

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Do you currently have federal student loans and you’re struggling to keep up with the monthly payments?

If so, you’re not alone. Did you know that 15% of student loans are in default at any given time? In fact, over 1 million student loans enter default each year.

What Are My Options When I’m Struggling to Make My Student Loan Payments Each Month?

If you are currently set up on a standard repayment plan, then your federal student loan is set to a 10-year term with a fixed interest rate and fixed monthly payment.

The good news is that the standard plan will save you the most money in interest, however that doesn’t do you any good if you can’t make the monthly payments.

Whether you have a subsidized, unsubsidized, a PLUS loan or a Consolidation Loan, there are four different repayment options available to those struggling to pay their federal student loans. Each factors in your income to help you make affordable payments.

Option 1. Pay As You Earn Plan (PAYE)

The Pay as You Earn (PAYE) plan is usually one of the best repayment plans for anyone struggling to keep up with their student loan payments.

  • Repayment Length: 20 years
  • Payment Amount: 10% of your annual discretionary income divided by 12 months and you must recertify your income every year.
  • Loan Types: Must have federal direct loans. Parent PLUS loans or a Direct Consolidation Loan which includes a PLUS loan are not eligible
  • Loan Forgiveness: Balance on student loan is forgiven at the end of the repayment period

PAYE also has the strictest application requirements. In fact, unless you borrowed for college for the first time in the 2008-2009 academic year and you were still in school in the 2011-2012 academic year, you probably won’t qualify.

PAYE is best for borrowers who fall into the following categories:

  • Aren’t anticipating a large increase in income anytime soon
  • Have grad school debt
  • Married and both you and your spouse have an income

As with most repayment plans, the monthly payment is set at 10% of your discretionary income and must be less than the monthly payment on a standard repayment plan.

One unique thing about PAYE is your monthly payment is based on how you file your taxes. If you and your spouse both have an income and you file taxes separately, then payments will be solely based on your income. If you file married, then the monthly payments will be based on your combined income.

Option 2. Revised Pay As You Earn Plan (REPAYE)

If you don’t qualify for PAYE, then REPAYE may be your next best option.

  • Repayment Length: 20 years for undergraduate studies or 25 years for graduate or professional studies.
  • Payment Amount: 10% of your annual discretionary income divided by 12 months and you will need to recertify your income every year.
  • Loan Types: Must have federal direct loans. Parent PLUS loans or a Direct Consolidation Loan which includes a PLUS loan are not eligible
  • Loan Forgiveness: Balance on student loan is forgiven at the end of the repayment period

REPAYE is often best if you fall into any of the following categories:

  • You are single
  • You only have undergraduate debt
  • You are expecting your income to go up

Unlike PAYE, REPAYE will always factor in combined income to determine your monthly payment. Therefore, if you and your spouse both have an income, you will have a higher monthly payment than you would with the PAYE program.

However, the interest subsidy with REPAYE is much better than with the PAYE plan. When you’re on an income driven repayment plan, the amount you’re paying often only covers a portion of the interest on the loan since the full standard payment isn’t required. Therefore, any remaining interest will continue to accrue each month.

With REPAYE, the government will pay the remaining interest each month for unsubsidized loans and half of the remaining interest for subsidized loans for the first three years. Then after three years, the government will pay half the remaining interest for both subsidized and unsubsidized loans.

Yes, this sounds confusing so let’s take a look at a quick example.

Example: Let’s assume you have $20,000 in unsubsidized loans and $30,000 in subsidized loans, both with a 5% interest rate. Each month, the interest accrued on the subsidized loan is $84 and then $125 for the unsubsidized loan.

Loan Type Unsubsidized Subsidized
Amount $20,000 $30,000
Rate 5% 5%
Interest Amount Owed $84 $125
Amount Subsidized Up to 100% Up to 50%
After 3 Years Up to 50% Up to 50%

If your income qualifies you for $0 payments, then the government would cover the “up to” amounts.

With the REPAYE program, the government could cover up to the entire $84 for the subsidized loan and then half ($63) for the unsubsidized loan. Then after three years, the government would cover only half for each subsidized and unsubsidized loan ($42 and $125).

Option 3: Income-Based Repayment Plan (IBR)

If you don’t qualify for PAYE or REPAYE, then an income-based repayment plan may be a solution.

  • Repayment Length: 20 - 25 years based on when you created your loan.
  • Payment Amount: 10% - 15% of your annual discretionary income based on when you created your loan but must be less than the payment amount for the standard repayment plan. You will also need to recertify your income every year.
  • Loan Types: Must have federal direct loans. Parent PLUS loans or a Direct Consolidation Loan which includes a PLUS loan are not eligible.
  • Loan Forgiveness: Balance on student loan is forgiven at the end of the repayment period

Option 4: Income-Contingent Repayment Plan (ICR)

If you have a Parent PLUS loan or a Direct Consolidation Loan which includes a PLUS loan, then ICR is your only option.

The monthly payments will be slightly higher than PAYE, REPAYE and IBR, however the remaining balance at the end of the 25-year period will still be forgiven.

  • Repayment Length: 25 years
  • Payment Amount: 20% of your annual discretionary income divided by 12 months OR fixed payments on a 12-year loan — whichever is smaller.
  • Loan Types: Must have federal direct loans including Parent PLUS loans or a Direct Consolidation Loan which includes a PLUS loan.
  • Loan Forgiveness: Balance on student loan is forgiven at the end of the repayment period

Comparing All Four Repayment Plans

Repayment Option PAYE REPAYE IBR ICR
Length of Loan Repayment 20 Years 20 Years for Undergrad and 25 Years for Graduate 20 Years if Borrower on or after July 1st, 2014.

25 Years if Borrower before July 1st, 2014.
25 Years
Loan Types All Federal Student Loans EXCEPT PLUS Loans All Federal Student Loans EXCEPT PLUS Loans All Federal Student Loans EXCEPT PLUS Loans All Federal Student Loans INCLUDING PLUS Loans
Loan Forgiveness After 20 Years After 20 or 25 years After 20 or 25 years After 25 Years
Best For Married with 2 Incomes and You Don’t Expect Income to Increase Drastically Not Married and You Expect Your Income to Increase When You Don’t Qualify for PAYE Parent PLUS Borrowers

Getting Started

To get setup with either PAYE, REPAYE, IBR or ICR, head on over to StudentAid.gov.

Not only can you get set up on an income-driven repayment plan, but you can also switch between the plans or even back to a standard repayment plan if you prefer.

The bottom line — if you’re struggling to keep up with your monthly student loan payment, there are options to help you make it through.

Chris “Peach” Petrie is the founder of Money Peach. Money Peach partnered with OneAZ to provide free financial education to members across the state. To learn more about OneAZ’s partnership with Money Peach, click here.

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APR = Annual Percentage Rate