Repayment Strategies: IDR, PSLF, and Avoiding Default
Graduation is over, and the six-month grace period is ending. Don't panic. From Income-Driven Repayment to Public Service Loan Forgiveness, discover the strategy that fits your career path.
The grace period is ending. Bills are about to arrive. For many graduates, this is a moment of panic—but it doesn't have to be. The federal student loan system offers remarkable flexibility if you know how to use it.
Strategy 1: Standard Repayment (Fastest Payoff)
The default plan for federal loans. You pay a fixed amount over 10 years (120 payments).
Pros:
- Fastest path to being debt-free
- Lowest total interest paid
- No paperwork required—it's automatic
Cons:
- Highest monthly payment
- No flexibility if income drops
Best for: Borrowers with stable, high income who want to minimize total cost.
Strategy 2: Income-Driven Repayment (IDR)
IDR plans cap your monthly payment at a percentage of your "discretionary income" (income above 150-225% of poverty line, depending on plan).
Current IDR options include:
- SAVE Plan (newest, often lowest payments)
- IBR (Income-Based Repayment)
- PAYE (Pay As You Earn)
- ICR (Income-Contingent Repayment)
The Trade-Off: Lower monthly payments mean a longer term (20-25 years) and more total interest. Any remaining balance after 20-25 years is forgiven—but may be taxable income (the "tax bomb," though current rules are in flux).
Important: You must recertify income annually. Miss the deadline and you may be kicked off IDR temporarily.
Strategy 3: Public Service Loan Forgiveness (PSLF)
PSLF forgives your remaining balance after 120 qualifying payments (10 years) if you work for:
- Government agencies (federal, state, local)
- 501(c)(3) nonprofit organizations
- Other qualifying public service employers
Requirements:
- Work full-time for a qualifying employer
- Make 120 payments while on an IDR plan
- Have Direct Loans (FFEL loans must be consolidated first)
- Submit Employment Certification Form annually
Record-Keeping Tip: Keep copies of every employment certification, payment record, and servicer communication. PSLF has had administrative problems, and documentation is your protection.
Repayment Strategy Comparison
| Plan | Best For | Term | Forgiveness? |
|---|---|---|---|
| Standard | High, stable income | 10 years | No |
| IDR (SAVE/IBR) | Low/variable income | 20-25 years | Yes (taxable) |
| PSLF | Public service workers | 10 years | Yes (tax-free) |
Grace Period: Don't Waste It
Most federal loans give you 6 months after graduation before payments begin. Use this time wisely:
- Build an emergency fund (1-2 months of expenses minimum)
- Research your repayment options and enroll in IDR if needed
- Set up autopay for a 0.25% interest rate reduction
- Don't ignore the debt—interest may still accrue depending on loan type
Disclaimer: This guide is for educational purposes only and does not constitute financial advice.