Student Loan Repayment Options: How Student Loans Work and How to Pay Them Off

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Student loans are often the first major debt Americans take on, and repaying them can span a decade or more. The right repayment approach depends on the type of loans you have, your income, your career and your goals. This guide explains how student loans work and the main options for paying them back. Estimate payments with our student loan calculator.

Important: Federal student loan repayment options were reshaped by legislation enacted in 2025, with changes phasing in over several years. Which plans you can use depends on when your loans were disbursed and the plan you are already in. Always confirm your options with your loan servicer and the official Loan Simulator before making changes.

How student loans work

When you borrow for education, the lender pays the school (and sometimes you, for living costs). Key terms:

• Principal: the amount borrowed.
• Interest: charged on the balance. On most loans, interest starts accruing when the money is disbursed. On Direct Subsidized federal loans, the government pays the interest while you are in school at least half-time and during certain other periods.
• Grace period: a period after you leave school before repayment begins — six months for many federal loans.
• Capitalization: unpaid interest added to your principal, after which you pay interest on it too.
• Servicer: the company that handles billing and repayment plans for your loans.

Federal vs. private student loans

Because of these protections, federal loans are generally the better first choice. To apply, complete the FAFSA at StudentAid.gov.

Federal repayment options

Standard fixed payments

A standard plan spreads your balance into fixed monthly payments over a set term. It usually results in the lowest total interest among federal plans. Historically the standard term has been 10 years for most borrowers; under the new rules for newer loans, the standard term can vary based on how much you owe.

Income-driven repayment (IDR)

Income-driven plans calculate your payment from your income and family size rather than your balance. They can make payments affordable when your income is low relative to your debt, and any remaining balance may be forgiven after a long repayment period.

The 2025 legislation created a new income-based plan — the Repayment Assistance Plan (RAP) — for newer borrowers and set timelines for phasing out several older income-driven plans. Some existing borrowers can stay in or move between certain plans for a transition period. Because details depend on your loan dates and current plan, use the official plan pages at StudentAid.gov.

Trade-off: lower payments often mean more interest over time, and in some cases forgiven amounts may have tax consequences. Recertify your income on time each year.

Graduated and extended plans

Some borrowers have access to plans where payments start lower and rise over time, or are spread over a longer term. Availability depends on your loans and when they were made.

Forgiveness programs

• Public Service Loan Forgiveness (PSLF): forgives the remaining balance on Direct Loans after 120 qualifying monthly payments while working full-time for a qualifying employer, such as government or a 501(c)(3) nonprofit. Use the PSLF tools to certify employment.
• Teacher Loan Forgiveness: for eligible teachers in low-income schools.
• Forgiveness under income-driven plans after the required repayment period.
• Discharges for total and permanent disability, school closure and certain other circumstances.

Private student loan repayment

Private loans follow the terms in your loan agreement. Options may include:

• Fixed monthly payments over the loan term
• Interest-only or reduced payments while in school
• Limited hardship forbearance

Call your lender early if you are struggling — options are more limited than for federal loans, but many lenders have some hardship programs.

Refinancing: when it helps and what you give up

Refinancing replaces one or more student loans with a new private loan, ideally at a lower rate.

• Private loans: refinancing can make sense if you qualify for a lower rate.
• Federal loans: refinancing into a private loan permanently forfeits federal benefits — income-driven repayment, deferment and forbearance options, and forgiveness programs. Only consider it if you are confident you will not need those protections.

Federal loans can also be combined through a Direct Consolidation Loan, which simplifies payments but uses a weighted average interest rate (rounded up slightly) rather than lowering it.

Strategies to pay less interest

1. Pay interest while in school or during the grace period to prevent capitalization.
2. Enroll in autopay — federal servicers and many private lenders offer a small rate reduction.
3. Pay extra and target the highest-rate loan. Ask your servicer to apply extra payments to principal rather than advancing your due date.
4. Use windfalls like tax refunds and bonuses for lump-sum payments.
5. Check employer benefits — some employers help repay student loans.

On a $32,000 balance at 6% over 10 years, the standard payment is about $355 a month and total interest is about $10,600. Adding $100 a month would pay the loan off almost three years sooner and save about $3,100 in interest. Try your own numbers in the student loan calculator.

Avoiding default

Federal loans generally go into default after about 270 days of missed payments. Consequences can include the entire balance becoming due, wage garnishment, seizure of tax refunds and serious credit damage. If you are struggling, contact your servicer before you miss payments — income-driven repayment, deferment or forbearance may be available.

The bottom line

Start by identifying which loans you have and who services them. For federal loans, compare the standard plan with income-driven options using the official Loan Simulator, and consider forgiveness programs if your career qualifies. For all loans, autopay and targeted extra payments reduce what you pay over time. Explore more in our student loans section.

This guide is part of our Loans hub and our complete personal finance guide. Spot an error? Request a correction.