Consumer Comeback Blog

Pros and Cons of Student Loan Repayment Options

Written by Jeffrey Trull

student-loan-repaymentYou’re struggling with repaying your student loans. Making the payments is putting a real strain on your budget, and you’re forever battling to keep track of statements coming from multiple loan servicers. But this is the only way, right?

Actually, there are several options that could make paying back your loans easier if you find yourself in this situation.

Taking advantage of repayment options can save you money, get organized, and allow some flexibility in monthly payment amount depending on what you can afford to pay.

Here are loan repayment options that you may want to take advantage of, and some pros and cons of each.

Standard Repayment

Pros: Typically you’ll pay the least amount over the life of the loan, and you’ll pay your loans off faster. No extra work required to use this method.

Cons: You might find it hard to make payments within your budget, depending on how much you earn. If you have several different loans, you’ll probably need to make separate payments to each.

For federal loans,”Standard Repayment” is the default method if you take no action. You’ll simply pay a fixed amount each month until your loans are paid off, typically within 10 years.

This method is also how you’ll usually pay off private loans, too. Private loans usually charge a higher interest rate, plus they lack many of the flexible terms that come with the federal loan options. Because of this, you may want to target private loans with extra payments to pay down balances faster.


Pros: Just about anyone with federal loans is eligible. Lower monthly payments. Just one bill to deal with.

Cons: You’ll lose the ability to target certain loans based on interest rate. Only federal loans eligible. Extending term means increased cost over the life of the loan and longer wait until it’s all paid off.

If you have multiple loans, you might want to consider the option of consolidating. Only federal loans are eligible to be consolidated into a Direct Consolidation Loan, but hopefully this is the majority of your outstanding student debt.

Consolidating doesn’t necessarily save you money. In fact, it may end up being a more expensive option. All of your loans will be combined and a weighted average of all your interest rates will be taken. The benefit is easier repayment by having only one account to worry about instead of multiple.

If your loans are varied in interest rate, you might not want to consolidate if you plan to target certain loans for payoff first. For example, if you’d like to tackle the highest interest rates first, it may be best to keep loans separate and work on paying down each loan by itself. Once you consolidate loans, you lose the ability to target higher-interest loans.

Apply For a Payment Plan

Pros: Some plans tailored specifically to your income. Lower monthly payments.

Cons: All options are typically more costly than standard repayment in the long-term. Not everyone is eligible for all options.

There are actually five options beyond Standard Repayment, which is already detailed above. Repayment options can be used in conjunction with consolidation, too.

Compared to standard repayment, you’ll pay more for all options over the life of the loan. These options include:

  • Graduated repayment – Similar to the standard repayment, except monthly payments aren’t fixed. You’ll start off paying less and gradually payments will increase, hopefully as your income increases, too. You’ll pay off your loans within 10 years as well, but you’ll pay more interest due to the graduated terms.
  • Extended repayment – With this plan, you’ll lower your monthly payments by extending the loan term to 12-25 years. You’ll also pay more than both of the two previous repayment plans mentioned.
  • Income-based repayment – If you have a financial hardship, you can cap the amount of your payments to 15 percent of your discretionary income and pay back your loans for up to a 25 year term. If there’s still a balance left at 25 years, the remaining balance may be canceled.
  • Income-contingent repayment – Similar to income-based, payments are calculated each year based on your annual income. Terms can extend to 25 years. This plan is only for Direct Loans.
  • Income-sensitive plan – Again, this is based on income, except it’s for Stafford and PLUS Loans. You’ll be allowed up to 10 years to pay.

Not all borrowers or loans are eligible for all these options, so read over the repayment guidelines to get a better understanding.

Alternatives When You Can’t Pay

Pros: For extreme financial hardship, there are options before missing payments or defaulting. Special situations, such as continued college enrollment or military duty, may allow you to stop payments and/or interest charges for a period of time.

Cons: Yet again, increased costs in some cases.

If you’re having trouble paying your loans, there are several more options that can potentially help you, at least temporarily.

Forbearance and deferment might be helpful for stopping payments for a bit. You’ll have to be approved for both, and you’re only eligible in certain situations. For example, you might only be able to get deferment if you’re active-duty military or still taking college courses at least half-time. Forbearance has less conditions attached, but you’ll be racking up interest charges while you wait to make payments again.

Under certain special situations, forgiveness, cancellation, and discharge may all be options. These tend to be more extreme cases, so read the descriptions of each to find out if and when these may apply to you.

Defaulting on your loan is essentially the worst case scenario. Your credit will be damaged if you stop making payments and you may just be creating more problems down the line for yourself. It’s very difficult to discharge loans through bankruptcy, so don’t bank on that as an option.