Your Top Student Loan Questions Answered: Restart of Repayment on Oct. 1

It has been a busy summer leading up to the restart of repayment on October 1. Since July, I have received more than 450 borrower inquiries ranging from basic student loan servicer information to specific forgiveness updates. I’d like to share some of the most common questions I received from borrowers and hope this information helps you understand your options.  

What are my repayment options?  

Borrowers with federal student loans have several repayment options depending on their loan type. There are three traditional repayment plans that give borrowers a set amount of time to pay their student loan with a fixed or graduated monthly payment. The three traditional repayment plans are the Standard Repayment Plan, Graduated Repayment Plan, and Extended Repayment Plan. When someone enters repayment, they are automatically placed on the Standard Repayment Plan.     

There are also four income-driven repayment (IDR) plans which set a borrower’s monthly payments at an amount based on their income and family size. Most federal student loans are eligible for at least one IDR plan. The four IDR plans are Pay As You Earn (PAYE) Repayment Plan, Income-Based Repayment (IBR) Plan, Income-Contingent Repayment (ICR) Plan, and the new Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan. In addition to affordable monthly payments, all IDR plans have a forgiveness component to them. This means that you will qualify for forgiveness of any remaining loan balance after you have satisfied the equivalent of 240 or 300 qualifying monthly payments over a period of at least 20 or 25 years. 

To apply for a traditional repayment plan or an IDR plan you can contact your student loan servicer or apply through Federal Student Aid. If you are not sure which plan is best for you, you can use the Federal Student Aid Student Loan Simulator to estimate your monthly payments. 

Everyone’s financial situation and goals are different, so it is important for borrowers to understand their options. To learn more about your repayment options, watch the Preparing for Return to Repayment Webinar.  

To avoid student loan-related scams and fraud, borrowers should be aware that they should never have to pay for help to select or apply for a repayment plan.  

What repayment plans and forgiveness options are available for Parent PLUS borrowers?  

Parent PLUS borrowers are eligible for the three traditional repayment plans: Standard Repayment Plan, Graduated Repayment Plan, and Extended Repayment Plan. They are also eligible for one of the income-driven repayment (IDR) plans, the Income-Contingent Repayment (ICR) Plan, but they must consolidate their Parent PLUS loan into a Direct Consolidation Loan. It is important to note that if a parent borrower consolidates a Parent PLUS Loan with other eligible loans received for the parent’s own education, the new Direct Consolidation Loan (which includes the Parent PLUS loan and the parent’s own loan) will only be eligible for the ICR Plan and the borrower will lose access to the three other IDR plans, including the new Saving on a Valuable Education (SAVE) Plan. A borrower can consolidate both types of loans separately to avoid losing access to affordable repayment plans. A Parent PLUS borrower can use the Federal Student Aid Student Loan Simulator to estimate their monthly payments under each plan. 

Parent PLUS borrowers are eligible for Public Service Loan Forgiveness (PSLF) if the parent borrower is working for a qualifying PSLF employer. They are also eligible for income-driven repayment (IDR) forgiveness after 25 years of repayment. Both forgiveness options require borrowers to be in repayment under a qualifying IDR plan, therefore Parent PLUS borrowers must consolidate their Parent PLUS loans into a Direct Consolidation Loan.  

What consolidation is right for me? 

Consolidation is the process of combining one or more federal education loans into a new federal Direct Consolidation Loan and is similar to refinancing. A borrower may consolidate once they are in repayment or in grace period and may decide to consolidate only certain loans.  

Loan consolidation allows borrowers to have a single monthly payment on the new Direct Consolidation Loan instead of multiple monthly payments. A borrower may also get a lower payment and have access to additional income-driven repayment (IDR) plans, or to forgiveness options such as IDR or Public Service Loan Forgiveness (PSLF). Consolidation loans have a fixed interest rate for the life of the loan. The fixed rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent.  

However, consolidation may not be the best option for all borrowers, depending on loan types, interest rates, repayment history and forgiveness progress. Some things to consider are that consolidation could extend a borrower’s repayment period and could increase the total interest over the life of your loan. Any unpaid interest will capitalize, added to the principal balance, therefore consolidation can cost more over the life of the loan. Borrowers with Parent PLUS loans who consolidate loans for their own education could lose access to certain repayment plans for loans for their own education. Starting in 2024, borrowers who consolidate will also lose credit for qualifying payments they’ve already made toward IDR forgiveness or toward PSLF. A borrower can complete a loan consolidation application online or by mail and the process is free. Before consolidating, a borrower should understand the pros and cons. For additional information about loan consolidation, visit Federal Student Aid.