One of the major considerations of taking out a student loan is its repayment plan. Failure to choose the right loan repayment plan may hamper your ability to pay the borrowed amount within an appropriate time frame and you may find yourself trapped in the debt cycle.

There are a number of options when it comes to the selection of a repayment plan for your student loan, such as:

  • Standard repayment plan
  • Pay-as-you-earn plan
  • Income-sensitive repayment plan
  • Income-driven repayment plan
  • Graduated repayment plan
  • Extended repayment plan

The choice of repayment plan depends on type of loan, borrower’s income, and their personal preferences. Students are required to select the repayment plan when they initiate repaying the loan, but they are provided the liberty to change the plan during the course of repayment.

Standard Loan Repayment Plan

Standard loan repayment plan is termed as a ‘standard’ repayment plan because if you don’t opt for a particular plan, the lender will automatically put your loan on standard repayment. This plan allows you to repay the loan in the shortest term. Also, the interest rate is lowest for standard loan repayment plan, which means that you will pay the least amount of interest with this type of loan repayment plan.

What Types of Student Loans are Eligible for Standard Repayment Plan?

The following types of student loans can be repaid using the standard repayment plan.

  • Direct PLUS loans
  • FFEL PLUS loans
  • Direct and FFEL consolidation loans
  • Direct subsidized and unsubsidized federal Stafford loans
  • Direct subsidized and unsubsidized loans

How does the Repayment Work?

Under the standard loan repayment plan, the borrower is required to make fixed monthly payments. The amount of payments remains fixed over the repayment term, except when the interest rate is variable. The amount of monthly payment depends on the principal amount borrowed by an individual. $50 is the minimum monthly amount that the borrower is required to pay every month to the lender.

Repayment term for all direct loans is 10 years, except for Direct Consolidation loans and FFEL Consolidation loans.

What are the Benefits of Standard Loan Repayment Plan?

Standard repayment plan is the most popular repayment plan among student loan borrowers. It is estimated that about two-thirds of all direct loan borrowers choose standard loan repayment plan for paying off the principal amount.

There are two major benefits of standard loan repayment.

  1. This plan has the shortest repayment term, which means that the borrower pays least amount of interest under this repayment plan.
  2. This plan has the lowest interest rate, which also helps the buyer in making regular loan repayments without compromising on life necessities.

However, shortest loan repayment term translates into higher monthly payments. Therefore, this type of repayment plan should be chosen by individuals who have a steady source of income and who want to repay their student loan in a short amount of time.