And while an income-driven plan can reduce monthly payments, you may pay more overall because the repayment period is longer than the standard plan, she says. “A lot of things are going to happen over the course of repayment - your earnings trajectory, your life decisions like marriage and children - that affect your income-driven payment,” Ahlman says. Lindsay Ahlman, senior policy analyst for the Institute of College Access & Success, says to think long-term before choosing an income-driven plan, and know you can always switch to income-driven repayment if you hit a rough patch. But these plans are typically a safeguard for borrowers who can’t afford their loans, as payments can be as small as $0 and balances are forgiven after 20 or 25 years of payments. Income-driven repayment costs about the same as standard repayment under these circumstances. It also assumes annual income growth of 5%. This example uses the Revised Pay As You Earn plan, a family size of zero and an income of $50,004, based on starting salary estimates from the National Association of Colleges and Employers. The government offers four income-driven repayment plans that base payments on your income and family size. You must owe more than $30,000 in federal student loans to use extended repayment. “ is not going to be best for a lot of people,” Mueller says. Fixed payments add more than $20,000 to the example $30,000 balance graduated payments would inflate your balance even more. The extended plan stretches repayment to 25 years, with payments either fixed or graduated. “It’s not going to be a huge difference, but every penny counts,” she says. However, those doing well careerwise should try to make the standard plan work because of its lower interest costs. Despite having the same repayment term as the standard plan, graduated repayment costs $1,850 more overall due to additional interest costs.Ĭathy Mueller, executive director of Mapping Your Future, a nonprofit located in Sugar Land, Texas, that helps college students manage debt, says graduated repayment may be a good option for those who expect their earnings to increase in the future. Graduated plans start with low payments that increase every two years to complete repayment in 10 years. “The monthly payment would be higher, but in the long run would save more in interest charges,” Coleman says. Standard repayment adds more than $7,000 to the loan’s balance in this example, but that’s less than most other options.īarry Coleman, vice president of counseling and education programs for the National Foundation for Credit Counseling, says to stick with the standard plan if payments aren’t more than 10% to 15% of your monthly income. Federal borrowers automatically start repayment under this plan, unless they choose a different option. The standard plan splits loans into 120 equal payments over 10 years. Here’s how much $30,000 in unsubsidized federal student loans would cost under different plans at the 2019-2020 undergraduate rate of 4.53%. Using a tool like the Education Department’s Repayment Estimator can help you better understand potential costs.

The bottom line? Opting for lower payments will cost you more overall. One key to limiting interest cost is choosing the right repayment plan. But they’ll likely repay thousands more than that because of interest.

Mapping your future standard calculator