Is the 10-Year Standard Repayment Plan Right for Your Student Loans?

If you borrowed federal student loans to pay for college, they will automatically be placed on the standard repayment plan. On this plan, you’ll make fixed payments on your student loans over a period of 10 years.

While the standard repayment plan works for some borrowers’ budgets, it’s not right for everyone. Find out how the plan works so you can decide if it’s the right choice for you. Specifically, let’s answer the following questions:

What is the standard repayment plan for student loans?

If you don’t specifically choose another plan, your federal student loans will automatically be placed on the standard repayment plan, and there they’ll stay unless you decide to switch. The standard plan is designed to pay off your loans in 120 fixed payments over 10 years.

While the monthly payments on this plan may be higher than they would be on other plans, paying off your loan in 10 years could lower the overall interest you pay.

Standard repayment plan eligibility

All borrowers with the following loans are eligible for the standard repayment plan:

• Direct subsidized loans
• Direct unsubsidized loans
• Direct PLUS loans
• Direct consolidation loans
• Subsidized federal Stafford loans
• Unsubsidized federal Stafford loans
• FFEL PLUS loans
• FFEL consolidation loans

Note that private student loans aren’t eligible for federal repayment plans, such as standard repayment, but most do come with the option of a 10-year repayment plan option. You’ll choose your repayment terms when you borrow your loan.

How does the standard repayment plan work?

Although you may choose to stick with the standard repayment plan, it’s worth a look at your other options first to see what’s the best choice for your loans.

The Department of Education recommends that you use its Loan Simulator tool. This online tool will reveal what your student loan repayment will look like on different repayment plans.

The two most important numbers to focus on are your monthly payments and the total amount paid. You need a monthly payment you can afford, but you also want to pay as little as possible in the long run.

The standard repayment plan tends to be a good balance of both. However, specific repayment options can vary based on your own individual circumstances, so it’s always a good idea to check the Loan Simulator before opting for the standard repayment plan.

Payments on the standard plan

When you’re set up on the standard repayment plan for student loans, your monthly payments are generally calculated based on what it will take to pay off your balance within 10 years’ time. That said, the plan requires you to pay a minimum of $50 a month.

However, consolidated loans are the exception. If you have Direct consolidation loans or FFEL consolidation loans, your payment term may range between 10 and 30 years. The $50 monthly minimum still applies; however, the payment amount is determined not only by what you owe on the consolidated loans, but also any other student loan debt.

Changing your repayment schedule

If you are having trouble making the monthly payment with the standard repayment plan, you can choose to enroll in a different plan at any time, with no cost or penalty to you, providing you continue to make timely payments. Use the Loan Simulator to get some idea of alternative options, and then contact your student loan servicer.

Remember, switching plans should always be free, and servicers can’t charge you for talking to you about your loans. If anyone tells you otherwise, it could be a debt-relief scam.

What are the pros and cons of the standard repayment plan?

Now let’s run through the benefits and drawbacks of sticking with your standard-issue 10-year repayment schedule.

Pros

There are three key benefits to sticking with the standard plan:

• Your student loans will be paid off within 10 years, allowing you to free up cash to work toward other financial goals, like buying property, saving for retirement or travel.
• You’ll save on interest fees. For instance, although income-driven repayment plans can offer lower monthly payments, that’s because they’re spread over a much longer period of time. As a result, the interest will cost you more in the long run.
• It’s just one of your federal repayment options, so you can switch anytime.

Cons

There’s really just one major drawback, but it may be very significant, depending on your financial situation. On the standard repayment plan, your monthly payments will likely be higher than with other federal options.

That’s fine if you can swing it, but saving money over the life of the loan won’t do you any good when you’re barely scraping by today. If you can’t afford the daily necessities in your life, you should talk to your loan servicer about a plan that works for you.

What are the alternatives to the standard repayment plan?

The Department of Education offers other repayment plan options for federal loans:

• Graduated repayment plan: You’re on a 10-year plan (or 30-year plan for consolidated loans), but your monthly payment starts out low and gets higher over time, increasing every two years.
• Extended repayment plan: Your monthly payments are either fixed or graduated for up to 25 years and are generally lower than with other plans.
• Revised Pay As You Earn Repayment (REPAYE): You pay 10% of your discretionary income. Any remaining balance is forgiven after 20 years for undergraduate loans or 25 years for graduate loans.
• Pay As You Earn Repayment (PAYE): You pay 10% of your discretionary income, but no more than you would on the standard repayment plan. Any remaining balance is forgiven after 20 years.
• Income-Based Repayment (IBR): You pay 10% of your discretionary income, with any remaining balance forgiven after 20 years for loans taken after 2014. Older loans require 15% of your discretionary income, with forgiveness after 25 years.
• Income-Contingent Repayment (ICR): You pay whichever is lower: 20% of your discretionary income, or however much your monthly payment would be over a 12-year fixed payment period. Any remaining balance is forgiven after 25 years.
• Income-Sensitive Repayment: You pay a fixed amount based on your annual income for a period of up to 10 years. This plan is only available for Federal Family Education Loans (FFEL).

Note that for these plans, you may need to provide documentation of your income throughout your loan’s repayment period.

As you can see, there are a lot of similarities among these plans. It’s important that you learn about the alternative plans and their requirements.

Generally speaking, the standard repayment plan will save you money in interest, making it a good option for those who can keep up with the payments. But if your finances need the breathing room and you’re willing to make the trade-off of potentially paying more in interest, then you might want to look at other options.

If you don’t need access to any federal repayment plans or programs, you could also consider refinancing your student loans with a private lender for better rates.