Guide · Debt
US Student Loans: Standard, Extended, and SAVE Plans Compared
Federal student loans offer a confusing menu of repayment options. Choosing the right one can save you thousands of dollars in interest or drastically reduce your monthly burden.
The Default: Standard 10-Year Repayment
If you don't actively choose a repayment plan, your servicer will place you on the Standard Repayment Plan. Your payments are fixed, and they are mathematically calculated to pay off your balance (plus interest) in exactly 120 months (10 years).
Because the timeline is relatively short, this plan results in the highest monthly payments, but it guarantees that you will pay the lowest possible amount of total interest over the life of the loan.
Lowering Payments: Extended and Graduated Plans
If the 10-year payments are too high, but you earn too much to benefit from income-driven plans, you have two main alternatives that don't rely on your income:
- Extended Repayment: Stretches your loan term up to 25 years. This drastically lowers your monthly payment but means you will pay significantly more interest over the long run. (Requires more than $30,000 in Direct Loan debt).
- Graduated Repayment: Starts with lower payments that gradually increase (usually every two years). This assumes your income will rise over time, allowing you to handle higher payments later.
Income-Driven Repayment (IDR) and the SAVE Plan
IDR plans cap your monthly payment at a percentage of your "discretionary income," rather than basing it on your loan balance. After 20 or 25 years of payments, any remaining balance is forgiven (though it may be taxed as income).
The newest and most generous IDR plan is the SAVE (Saving on a Valuable Education) plan. It replaced the REPAYE plan and offers several massive benefits:
- It protects a larger portion of your income (225% of the poverty guideline) from the calculation.
- Undergraduate loans are capped at 5% of discretionary income (instead of 10%).
- Interest Subsidy: If your calculated payment is $50, but your loans accrue $100 in interest that month, the government forgives the remaining $50. Your balance will never grow as long as you make your required payments.
Plan Comparison Example
Consider a borrower with $50,000 in undergraduate federal loans at 5% interest, and a starting salary of $60,000.
| Plan | Initial Monthly Payment | Total Interest Paid | Time to Payoff |
|---|---|---|---|
| Standard 10-Year | $530 | $13,639 | 10 Years |
| Extended Fixed (25 yr) | $292 | $37,689 | 25 Years |
| SAVE Plan (assuming 3% annual raise) | $113 (rises over time) | Varies heavily | Until paid off or 20 yr forgiveness |
Under SAVE, initial payments are very low, freeing up cash flow. If the borrower pursues PSLF, SAVE is almost always the optimal choice.
Frequently asked questions
What is the Standard 10-Year Repayment Plan?
This is the default plan for federal student loans. Your payments are fixed and calculated to ensure your loans are paid off entirely in 10 years. It typically results in the highest monthly payments but the lowest total interest paid over the life of the loan.
What is an Income-Driven Repayment (IDR) plan?
IDR plans base your monthly payment on your income and family size rather than your loan balance. They are designed to make payments affordable. The most recent and generous IDR plan is the SAVE (Saving on a Valuable Education) plan.
How does the SAVE plan work?
The SAVE plan calculates your monthly payment based on your discretionary income. A major benefit of SAVE is the interest subsidy: if your calculated monthly payment doesn't cover the accrued interest for that month, the government covers the rest, preventing your balance from growing.
What is Public Service Loan Forgiveness (PSLF)?
PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan (like an IDR plan) while working full-time for a qualifying employer (government or non-profit).