Student Loan Repayment Plans – Part 1, Fixed Balance-Driven Plans

Federal direct loans are eligible for a variety of different repayment plans.  Navigating the repayment options is confusing for many people.  This multi-part series will summarize the main repayment options for direct federal loans.  Perkins loans and old FFEL loans have their own repayment options that will be discussed later.

As always, you can find out what of loans you have by looking up your federal loans in the National Student Loan Database System. If you have private loans, your contract with your lender will determine your payment options.

There are two buckets of repayment plan options for direct federal loans: (1) balance-driven plans and (2) income-driven plans.  The amount you pay under a balance driven plan depends on how much you owe.  The amount you pay under an income-driven plan depends on how much you make.  This is why income-driven plans can be an affordable option for people who owe a lot of money but do not make very much.  Balance-driven plans, however, can be appealing to some because they offer a structured, fixed repayment amount every month without any need for annual recertifications.

There are two types of balance-driven plans: those with fixed amounts and those wth graduated amounts.  This post covers the the fixed balance-driven plans.

On the Standard 10-Year Fixed repayment plan, you will pay the same amount every month for 10 years and at the end you will have paid off the entire principal balance.  In the beginning you will pay more interest and less principal, but every month you will pay slightly more principal until you pay off the loan entirely.  (For you math nerds out there, this is an amortizing loan where the monthly payment is determined by the standard mortgage formula).

The Extended 25-Year Fixed repayment plan is available for many borrowers who have $30,000 or more in direct or FFEL loans.  The idea is the same, but instead of paying off the loan over 10 years, you pay it off over 25.  This means your monthly payments will be lower, but the amount you pay over the life of the loan is higher.

If you have direct consolidated loans, the term for your fixed repayment differs based on the amount you owe:

  • If you owe less than $7,500, you may repay on a fixed 10-year plan
  • If you owe between $7,500 and $10,000, you may repay on a fixed 12-year plan
  • If you owe between $10,000 and $20,000, you may repay on a fixed 15-year plan
  • If you owe between $20,000 and $40,000, you may repay on a fixed 20-year plan
  • If you owe between $40,000 and $60,000, you may repay on a fixed 25-year plan
  • If you owe more than $60,000, you may repay on a fixed 30-year plan.

Next up, we will describe the other type of balance-driven plan: graduated plans.