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Should I Use The Standard 10-Year Repayment Plan?

May 15, 2019 · 4 minute read

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Should I Use The Standard 10-Year Repayment Plan?

When repaying your student loans, you may have the option to change your repayment plan. While there are many different student loan payment plans, the Standard Repayment Plan is generally considered a speedy way to pay your federal student loans.

If you do not select a plan, you’ll be placed by default on the Standard Repayment Plan. This plan sets your monthly payments at a certain amount so that you will have your loans paid off in 10 years, if not sooner.

You don’t have to begin repaying most federal student loans until you graduate college or fall below at least half-time enrollment. But once you do, you’ll want to decide what repayment options are right for you.

Lowering your payments by extending your loan term could mean you’ll pay more interest over the life of the loan. If you can afford to do so, selecting the Standard Repayment Plan may be a good option if your goal is to pay off your loans as quickly as possible.

Pros and Cons of the Standard Repayment Plan

Because this plan helps you pay off your loan in the shortest amount of time, staying on the Standard Repayment Plan could save you money over time, because you will likely pay less interest compared to programs with longer repayment terms. However, your monthly payments will probably be higher than payments made under other federal student loan repayment plans with extended repayment periods.

The Standard Repayment Plan will set your monthly payments to a minimum of $50 each month to be made for up to 10 years. Here’s what the Standard Repayment Plan could look like in practice:

If you just graduated with the average student loan debt of about $30,000, with a 5% interest rate and a monthly payment of $318, and you’d pay $8,192 in total interest. Expanding to 25 years lowers your monthly payment to $175, but you would end up paying $22,500 in total interest.

What may make the Standard Repayment Plan less appealing to some borrowers is that your payments will likely be higher than on any other repayment plan, because the goal is to have your loans paid off in 10 years or less.

For many people with a large amount of student debt or higher interest rates, this monthly payment can be daunting, or simply unmanageable. You might face some serious sticker shock when you receive your first bill after your grace period—so don’t let it come as a surprise.

Contact your loan servicer before your first payment is due to see what you will owe each month. You may even want to ask what other payment plans you might be eligible for. If you are already in repayment, you may be able to switch repayment plans at any time.

Consolidated Loans under the Standard Repayment Plan

A Direct Consolidation Loan combines all of your federal student loans into a single loan with one monthly payment and is usually most helpful if you have multiple federal student loan servicers. The interest rate on your Direct Consolidation Loan is a weighted average of all of your prior loan rates, rounded up to the nearest eighth of a percent.

If you’ve consolidated your federal student loans into one Direct Consolidation Loan, your repayment period under the Standard Repayment Plan might be extended beyond 10 years , depending on how much total debt you have.

While in most other cases the Standard Repayment plan is 10 years or less, if you have consolidated your federal loans and owe a qualifying amount of money, your term on the Standard Repayment Plan may be extended.

Depending on the amount you owe on your Direct Consolidated Loan, your term on the Standard Repayment Plan could be extended up to 30 years. (If your term is extended, though, you’re likely to pay more interest over the life of your loan.)

Here’s the breakdown of how much time you’ll be given to pay back your consolidated loan on the Standard Repayment Plan, depending on how much total debt you have:

•  10 years for less than $7,500

•  12 years for $7,500 to $10,000

•  15 years for $10,000 to $20,000

•  20 years for $20,000 to $40,000

•  25 years for $40,000 to $60,000

•  30 years for $60,000 or more

Alternative Student Loan Repayment Plans

While the Standard Repayment Plan might not give you the lowest monthly payment possible, it is likely the fastest, most direct route to paying off your student loans in 10 years or less. (Though, again, a Direct Consolidation Loan on a longer-term Standard Repayment Plan may be an exception to that.)

If you would prefer to have a lower monthly payment, or can’t afford the payments dictated under the Standard Repayment Plan, you can apply for an income-driven repayment plan. Under these plans , your monthly student loan payment will be set at a percentage of your discretionary income. With these plans, you’ll be in repayment for up to 25 years, after which any remaining debt is forgiven.

However, keep in mind that on these income-driven plans, you will probably pay more interest over time because of the longer loan term. Also, when your debt is forgiven, you may have to pay taxes on the forgiven sum.

Income-based repayment plans will have to be adjusted if your income or family size changes, and therefore you must reapply every year for these plans. But giving yourself more time to pay off your loans can keep your payments lower and help to free up some extra cash every month you’re in this plan.

If you are making higher payments under the Standard Repayment Plan, and choose to switch to an income-based plan, you can also consider paying a bit extra in the months you find yourself able to contribute more. This could help you pay your loans off faster than your given loan term.

Refinancing Your Student Loans

Student loan refinancing can benefit people with high interest rates, or multiple loan lenders, including private loans not from the federal government. While consolidation combines multiple federal loans into one, student loan refinancing gives you a new loan entirely, likely at a new interest rate, and a new term. And you can refinance private or federal student loans—or both.

Student loan refinancing pays off your current student loans with a new loan, and then you simply pay back the new loan. Because refinancing could come with a lower interest rate, you might pay less overall interest. Alternately, you could lower your monthly loan payments by refinancing for a longer term.. Use this student loan refinance calculator to see if refinancing could offer you greater student debt relief.

Refinancing your student loans with SoFi can help make your loans more manageable, even if you still want to stick to repaying them in 10 years or less.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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