Smart strategies for repaying student loan debt

Student loans are a vital part of paying for higher education for many people. No one enjoys taking on that debt, but student loans may be considered “good debt” — when viewed as an investment in your longer-term financial future. But even smart debt needs to be managed carefully to ensure it’s helping you meet your financial goals — not making it harder. One key strategy in managing your student loans is knowing your repayment options.

Student loan repayment isn’t a one-size-fits-all plan or schedule. It’s important to have a repayment plan that fits your financial needs.  You have several options depending on your current financial situation, your long-term goals, and whether your loans are federal, private, or a mix. Here’s what you need to know to ensure you have an excellent repayment plan.

How to evaluate repayment options

Before you can choose the repayment plan that fits your needs, you need a solid sense of where you are financially, as well as what your near- and long-term financial goals are. 

The first thing to figure out is how much money you currently can put toward student loan repayment.

You should also consider any potential changes in your financial future — good or bad — that could impact how much you can pay toward your student loans. If you’re up for a promotion with a big raise or considering a costly lifestyle change such as purchasing a home or starting a family, you need to factor that into your ability to meet your monthly student loan payment. No matter which repayment plan you choose, it has to be one you can afford. The last thing you want is to miss payments and risk defaulting on your loans. 

Next, think about how much you prioritize paying off your student loans earlier vs. taking a longer time. There’s no right or wrong answer here — it depends on your lifestyle, goals, and personality. Some people are happy to live a minimalist lifestyle for a few years to pay off those loans ASAP. Others prefer to make smaller payments over a longer period and have more financial flexibility.

But remember, the longer you take to pay off your student loans, the more you’ll pay in total. What started as a $20,000 loan will cost you many thousands more if you take 15 years to pay it off instead of 5. Taking longer to pay off your loans gives you more flexibility now but at the expense of “Future You”.

There’s one other consideration to keep in mind: If you have the potential to have your student loans forgiven, such as through a teacher student loan forgiveness program, make sure you opt for a payment plan that will let you still take advantage of that option.

Types of repayment plans

There are several different types of repayment plans, and they differ for federal and private loans. First, let’s look at your options for federal loans. Besides the default 10-year repayment plan, there are two other types: graduated repayment plans and income-based plans.

With a graduated repayment plan, you start with a smaller monthly payment which increases every two years. The total term for the loan is generally 10 years. The main benefit of this plan is that you have a smaller monthly payment early on when you’re likely earning less than you will later in your career. 

There are two downsides though. You’ll pay more in the long term since those smaller payments early on create a larger balance to accrue interest. Also, the relatively short timeframe can be challenging if you don’t significantly increase your income in that first decade after school. This plan works best for people who are confident they’ll be able to consistently increase their salary. 

Income-based repayment plans base your monthly payment on your income. The goal is to set the payment at a number that you can afford to make each month without having to live on ramen noodles for a decade. There are a few different kinds of income-based plans: Pay-as-you-earn (PAYE), Saving on a Valuable Education (SAVE), income-based plans, and income-contingent plans. However, with the passage of the One Big Beautiful Bill (OBBB), a few of these plans will be phased out on or potentially before July 1, 2028, while a new income-based plan, the Repayment Assistance Plan (RAP), will become available on July 1, 2026.

PAYE plans

PAYE plans are great for anyone whose income is too low to meet the standard repayment plan. You may qualify for a PAYE plan if you borrowed your first federal student loan on or after Oct. 1, 2007, and you took out a federal Direct Loan or Direct Consolidation Loan on or after Oct. 1, 2011. You also need to show that your current student loan payment plan creates financial hardship. 

A PAYE plan caps your monthly payment at 10% of your discretionary income for a term of 20 years — a much lower monthly payment than you’d have under the standard payment plan. After 20 years, any unpaid balance is forgiven — but you’ll have to pay taxes on that amount. Bonus: PAYE plans are eligible for loan forgiveness programs.

Note that the passage of the OBBB will likely result in PAYE plans being phased out, requiring borrowers to choose a new plan when these plans end. Also note that the window to apply for a new PAYE plan is supposed to close on July 1, 2027. Keep these considerations in mind as you consider your ideal payment situation going forward.

SAVE Plans

SAVE plans have faced significant legal challenges. Due to a court decision in February 2025, no new applications for a SAVE plan will be accepted. Those with loans currently enrolled in a SAVE plan are encouraged to find the next-best option based on their financial situation before the plans are eliminated on or before July 1, 2028.

Income-based repayment

To qualify for an income-based repayment (IBR) plan, your loans must be either Direct Loans or Federal Family Education Loans. In the past, you also had to demonstrate financial hardship, but with the passage of the OBBB, that requirement is no longer necessary.

An IBR will put your monthly payment at either 10% or 15% of your discretionary income for 20 or 25 years, depending on how long ago you received your loans. (Loans taken out before July 1, 2014, have the higher payment and longer loan term.) In either case, at the end of your term, any unpaid loan balance will be forgiven. 

Income-contingent repayment 

The income-contingent repayment plan (ICR) is a good choice if your income is too high to qualify you for PAYE or IBR plans, but not high enough to use the standard repayment plan because you don’t have to prove financial hardship. It’s also the only income-driven plan Parent PLUS loan holders can qualify for. 

If you use ICR, your payment will be set at either 20% of your discretionary income, or what your payments would be under a fixed 12-year loan (adjusted for your income). ICR has a 25-year term, with your unpaid loan balance forgiven at the end of the term.

A few things to consider: ICR plans include your spouse’s income, so if you’re married, this plan might not reduce your monthly payment as much as some of the other options. Also, while the window for applying to an ICR plan remains open until July 1, 2027, after that, it will close because of a provision in the OBBB. Additionally, ICR plan holders will be expected to choose a different plan when the ICR plans are phased out, currently scheduled to occur on or before July 1, 2028.

RAP plans

A Repayment Assistance Plan, or RAP, is a new income-driven repayment plan created under the OBBB. It is very different from existing IDR plans. For starters, even the lowest-income poorest student loan borrowers must make a minimum payment of at least $10 a month, regardless of whether or not they fall below the federal poverty line and regardless of their family size.

For RAP, monthly payments will be calculated as a percentage of the borrower’s total income (using adjusted gross income, or AGI) minus $50 per month per dependent. Like the discontinued SAVE plan, the RAP plan will waive any interest not covered by the borrower’s monthly payment. Additionally, unlike SAVE or other existing plans, the RAP plan will reduce borrowers’ principal by up to $50 if the payment does not do so. 

The RAP plan will likely be significantly more expensive for borrowers than the SAVE plan, and also more expensive than other existing IDR plans for low-income borrowers. Unlike existing IDR plans that provide cancellation after 10-25 years, the RAP plan will only provide cancellation after 30 years of qualifying payments. The OBBB specifies that the RAP plan should be available to borrowers beginning on July 1, 2026. 

Finally, depending upon your occupation, you may be able to qualify for loan forgiveness, cancellation, or discharge. Further, if you are on an income-driven repayment plan, were on one in the past, and/or in the Public Service Loan Forgiveness (PSLF) program you may be eligible for credit toward public loan forgiveness, or to have your loans forgiven automatically.

Next steps

You can see how each of these repayment plans would work with your specific circumstances by checking out the federal government’s loan simulator. Once you’ve settled on the repayment plan, you can apply directly through your loan servicer.  

You also have the option of refinancing your federal loans with a private lender to get better payment terms if you qualify. But private lenders don’t offer loan forgiveness. That option may hurt you in the long run if you lose that benefit. 

Private loans

Evaluating repayment plans for private loans require a little more legwork on your part because they aren’t uniform. Every lender offers different plans (with different names) and different criteria for who qualifies. 

However, unlike with the federal government, you aren’t stuck with the same lender. You can refinance some or all of your private student loans with any lender who offers you the best deal. 

Private lenders will offer different repayment plans with shorter or longer terms and interest rates. They’ll also generally take your credit score, income, and work history into account. Because each lender uses different criteria to evaluate applicants, it’s worth shopping around to see which one will offer you the best deal. (In most cases, you can get a quote without it dinging your credit score. Just try to do all your “shopping” in a relatively short amount of time.) 

Some things to look for when deciding which lenders to get a quote from are:

• whether they offer discounts on your interest rate for things like using autopay or having another account with them
• their general interest rates
• how easy it is to get in touch with customer service 
• if they have options for your preferred method of reaching them (an app, robust website, etc.) 
• whether having a co-signer could result in a lower rate
• the grace period allowed

Private lenders don’t offer traditional forbearance or deferment programs like the federal government. But some do have options to help if you run into financial difficulty — although they aren’t always easy to qualify for and come with lots of rules and restrictions. Even if you don’t need these programs now, it’s worth checking if your current or potential lender offers them. Everyone can use a safety net. 

If you’re planning — or just considering — going back for a graduate degree, you have one more factor to consider. While you’re in school, most lenders will offer you different options for repaying your existing and new student loans.

Generally, these fall into three kinds:

• Full deferment — you don’t have to pay anything toward your loans while you’re enrolled and for a short time afterward
• Fixed payments — You pay a fixed small amount each month while in school. This helps reduce your total loan debt on graduation but keeps your expenses while in school manageable. 
• Interest-only — You make monthly payments to cover the interest on your loans while in school. This is typically a slightly higher payment than the fixed plan, but it saves you money in the long run by reducing your total debt upon graduation. 

Private graduate student loans generally offer lower fees combined with flexible rates and higher borrowing limits if needed. If you decide you want to refinance and/or consolidate your private loans, it’s simple. First, gather the relevant information: your income, current student loan debt, credit history etc. Once you find your preferred lender, go to their website and it’ll walk you through the steps. Most lenders will have a decision for you within a few days to a week.

Evaluating your student loan repayment plan options takes a little leg work, and more than a little math, but investing an afternoon to find the most appropriate plan for your needs can save you thousands in the long run and help you achieve financial freedom that much faster. There’s no better way to maximize the investment you made in your education.