Strategies to Pay Back Federal Student Loans

By Becca Stanek · December 20, 2023 · 9 minute read

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Strategies to Pay Back Federal Student Loans

If you borrowed money from the government to help pay for college, the time will come when you need to pay your student loans back. That time typically arrives six months after you graduate or drop below half-time status.

While the prospect of paying student debt may seem daunting while you’re a student with little to no income, don’t stress. The U.S. Department of Education offers a number of repayment options, including plans that only require you to pay a small percentage of your monthly salary. Plus, there are steps you can take to make it easier to repay your student loans and potentially save money on interest.

Read on to learn how to start paying off student loans.

Paying Back Your Student Loans

You don’t need to start thinking about paying your loans while you’re enrolled in school at least half-time, and for six months after you graduate (which is called the grace period).

Unless your loans are subsidized by the federal government, however, interest will accrue during that entire period of time. That interest gets added to your loan balance, or capitalized, when repayment begins. As a result, your balance will be larger after you graduate than the amount you initially borrowed. You’ll also be paying interest on that larger balance moving forward.

If you have some income as a student (and have unsubsidized loans), you might choose to make monthly interest payments while you’re in school, or to make a lump-sum interest payment before your grace period ends. This will leave you with a smaller balance to pay off once your repayment period officially begins and can help you save money on interest. However, this is not required.

💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Types of Student Loans

To determine the right student loan repayment strategy, it’s important to know what type of student loans you have. Here’s a look at the main types of federal student loans.

Direct Subsidized Loans

Direct Subsidized Loans are a type of federal student loan only for undergraduates who have demonstrated financial need. With these loans, the government pays the interest on the loan while you are in school and during the grace period.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are available to eligible undergraduate, graduate, and professional students, and eligibility is not based upon financial need. Borrowers are responsible for all interest that accrues on the loan.

Direct PLUS Loan

Direct PLUS Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for education expenses. These loans are unsubsidized, meaning that interest accrues throughout the life of the loan, including while the student is enrolled in school.

When Do You Have To Pay Back Federal Student Loans?

You need to begin paying back most federal student loans six months after you leave college or drop below half-time enrollment.

Direct PLUS loans enter repayment once your loan is fully disbursed. However graduate/professional students who take out PLUS loans get an automatic deferment, which means they don’t have to make payments while they are in school at least half time, and for an additional six months after they graduate.

If you’re a parent PLUS loan borrower, you can request a deferment (it’s not automatic). This deferment means you won’t have to pay while your child is enrolled at least half time, and for an additional six months after your child leaves school or drops below half-time status.

How Do I Pay Back My Federal Student Loans?

When you leave school, you’ll be required to complete exit counseling. This is an online program offered by the government that helps you prepare to repay your federal student loans. You’ll then have the option to pick a repayment plan. If you don’t choose a specific plan, you’ll automatically be placed on the 10-year standard repayment plan. However, you can change plans at any time once you’ve begun paying down your loans.

Your federal loan servicer will provide you with a loan repayment schedule that tells you when your first payment is due, the number and frequency of payments, and the amount of each payment.

Your billing statement will tell you how much you need to pay. If you signed up for electronic communication, you’ll want to pay attention to your email. Most loan servicers send an email when your billing statement is ready for you to access online.

You might also consider signing up for autopay through your loan servicer. Since your payments will be automatically taken from your bank account, you won’t have to worry about missing a payment or getting hit with a late fee. Plus, you’ll receive a 0.25% interest rate deduction on your loan.

Choosing a Loan Repayment Plan

To repay your loan, you’ll need to pick a repayment plan. Here’s a look at your options, plus tips on why you might choose one plan over another.

The Standard Repayment Plan

The Standard Repayment Plan is the default loan repayment plan for federal student loans. Under this plan, you pay a fixed amount every month for up to 10 years (between 10 and 30 years for consolidation loans). This can be a good option for borrowers who want to pay less interest over time.

The Extended Repayment Plan

The Extended Repayment Plan is similar to the Standard Repayment plan, but the term of the loan is longer. Extended Repayment plans generally have terms of up to 25 years. The longer term allows for lower monthly payments, but you may end up paying more over the life of your loan thanks to additional interest charges.

The Graduated Repayment Plan

The Graduated Repayment Plan starts with lower payments that increase every two years. Payments are made for up to 10 years (between 10 and 30 years for consolidation loans). If your income is low now but you expect it to increase steadily over time, this plan might be right for you.

The Income-Driven Repayment Plan

With income-driven repayment plans (IDRs), the amount you pay each month on your student loans is tied to the amount of money you make, so you never need to pay more than you can reasonably afford. Generally, your payment amount under an IDR plan is a percentage of your discretionary income (typically 10% to 20%).

Under all IDR plans, any remaining loan balance is forgiven if your federal student loans aren’t fully repaid at the end of the repayment period (either 20 or 25 years).

There are four IDR plans to choose from:

•   Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan

•   Pay As You Earn (PAYE) Repayment Plan

•   Income-Based Repayment (IBR) Plan

•   Income-Contingent Repayment (ICR) Plan

IDR can be a good option if you’re having difficulty meeting your monthly payment and need something more manageable.

Consolidating Your Loans

If you have multiple federal student loans, you have the option of consolidating them into a single Direct Consolidation Loan. This might simplify repayment if you are currently making separate loan payments to different loan servicers, since you’ll only have one monthly payment to make. In addition, a Direct Consolidation Loan could make you eligible for more repayment plans than your current loans are eligible for.

Federal loan consolidation will not lower your interest rate, however. The fixed interest rate for a Direct Consolidation Loan is the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent. It might also extend your repayment term, which can result in paying more interest over the life of the loan.

Refinancing Student Loans

When you refinance your student loans, you combine your federal and/or private loans into one private loan with a single monthly payment. This can simplify repayment and might be a smart move if your credit score and income can qualify you for lower interest rates.

With a refinance, you can also choose a shorter repayment term to pay off your loan faster. Or, you can go with a longer repayment term to lower your monthly payments (note: you may pay more interest over the life of the loan if you refinance with an extended term).

If you’re considering a refinance, keep in mind that refinancing federal loans with a private lender disqualifies you from government benefits and protections, such as IDR plans and generous forbearance and deferment programs.

💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

The Takeaway

If you have federal student loans, you generally don’t need to start paying them down until six months after you graduate. At that point, you’ll have the opportunity to choose a repayment plan that fits your financial situation and goals. Whatever plan you choose, you’re never locked in. As your finances and life circumstances change, you may decide to switch to a different payment plan, consolidate, or refinance your student loans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


Is there a way to get rid of federal student loans?

If you repay your loans under an income-driven repayment plan, any remaining balance on your student loans will be forgiven after you make a certain number of payments over 20 or 25 years. Other ways to pursue federal student loan forgiveness are through Public Service Loan Forgiveness and Teacher Loan Forgiveness.

What is the best option for repaying student loans?

The best federal student loan repayment plan for you will depend on your goals and financial situation. If you want to pay the least possible in interest, you might want to stick with the standard repayment plan. If, on the other hand, you want lower monthly payments and student loan forgiveness, you might be better off with income-driven repayment. If your income is high but you want lower payments, you might look into a graduated or extended repayment plan.

What can the federal government do if you do not pay back your student loans?

Typically, If you don’t make payments on your loan for 90 days, your loan servicer will report the delinquency to the three national credit bureaus. If you don’t make a payment for 270 days (roughly nine months), the loan will go into default. A default can cause long-term damage to your credit score. You may also see your federal tax refund withheld or some of your wages garnished.

If, however, you had student loans that were on the pandemic-related pause, you have a little more breathing room. There is currently a 12-month “on-ramp” period that ends on September 30, 2024. Until that time, borrowers who miss making payments on their federal student loans won’t be penalized in the ways described above. Interest will still accrue, though, so you’re not entirely off the hook.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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