Student Loan Consolidation Comparison Calculator

Understanding Student Loan Consolidation and Repayment

The Problem

With average student loan debt exceeding $37,000 per borrower, choosing the right repayment strategy is critical. Federal student loans offer multiple repayment options, each with different monthly payment amounts, interest accumulation, and forgiveness timelines. Income-driven repayment plans promise manageable payments but result in longer repayment periods and potentially higher total interest. Recent policy changes (particularly the SAVE plan introduced in 2023) have shifted the landscape significantly. Borrowers need to understand how different plans compare to make optimal financial decisions.

Federal Repayment Plan Categories

• Standard Repayment: Fixed payment over 10 years (fastest payoff, highest payment)
• Income-Driven Plans: Payment based on discretionary income percentage, with forgiveness after 20-25 years
• Forgiveness Plans: Tax consequences may apply to forgiven amounts

The Mathematics

Standard 10-year repayment uses the basic loan amortization formula:

Where M equals monthly payment, P equals principal, r equals monthly interest rate, n equals 120 months

Income-driven plans calculate discretionary income as:

Monthly payment under income-driven plan (example: 5% SAVE plan):

Worked Example

Borrower with $100,000 debt at 5.5% interest, $75,000 annual income, 1-person household:

Standard Plan (10 years):

• Monthly interest rate = 5.5% / 12 = 0.4583%
• Monthly payment = $100,000 × [0.004583(1.004583)^120] / [(1.004583)^120 - 1] = $1,992
• Total interest = ($1,992 × 120) - $100,000 = $139,040
• Payoff time = 10 years

SAVE Plan (25 years):

• Discretionary income = $75,000 - (150% × $15,060) = $52,410
• Monthly payment = $52,410 × 5% / 12 = $218
• Much lower payment, possible forgiveness after 25 years
• Significant interest accrual if balance not paid down

Comparison Table: Repayment Plan Features

Strategic Decision: Speed vs. Flexibility

The core tradeoff in student loan repayment is speed vs. flexibility. Standard 10-year repayment requires aggressive payments ($1,992/month in the example) but you're debt-free in 10 years and pay only $139,000 in total interest. Income-driven plans (SAVE, PAYE, IBR) reduce monthly payments dramatically ($262/month under SAVE) but extend repayment to 20-25 years and result in much higher total interest accumulation. Additionally, income-driven plans with potential forgiveness create tax consequences—forgiven amounts are treated as taxable income in the year of forgiveness (potentially $20,000-60,000+ in unexpected tax bills). The tax bomb is a real consideration often overlooked. Strategic choice depends on your life stage: recent graduate with low income? Income-driven plan is manageable. Mid-career with good income? Standard repayment pays off debt and saves interest. Planning to pursue Public Service Loan Forgiveness (government, nonprofit work)? Income-driven plan with forgiveness might be optimal despite tax consequences.

The New SAVE Plan Game-Changer

The 2023 introduction of the SAVE plan (Saving on a Valuable Education) changed the landscape significantly. SAVE reduces discretionary income threshold from 150% to 225% of poverty line (meaning more people qualify for $0 payment), reduces payment percentage from 10% to 5%, and has faster forgiveness (10 years for those with original balances under $12,000). SAVE is dramatically more favorable than older plans (IBR, PAYE) for low-income borrowers—someone earning $25,000 with $50,000 debt pays $0/month under SAVE vs. $350/month under IBR. SAVE represents the most significant policy shift in decades. For existing borrowers, migration from PAYE/IBR to SAVE might be optimal despite potential interest accrual (unpaid interest doesn't capitalize under SAVE in many cases). This calculator models SAVE but borrowers should verify all details on studentaid.gov as rules continue to evolve.

Public Service Loan Forgiveness (PSLF) Strategy

For government and nonprofit workers, PSLF offers complete forgiveness after 10 years of qualifying payments. Under PSLF, your strategy shifts completely: income-driven plans become optimal (lower payments = easier to sustain 10 years), and you aim to minimize payments rather than pay off debt. A borrower with $200,000 in debt earning $60,000 in nonprofit work might pay only $300/month × 120 months = $36,000 total, leaving $164,000 forgiven tax-free. This is transformational compared to standard repayment ($2,000/month × 120 months = $240,000). However, PSLF has strict requirements: you must work for qualifying employer (federal, state, local government, or 501(c)(3) nonprofit), make income-driven payments (standard repayment doesn't count), and make 120 qualifying payments. A single misstep (changing to non-qualifying employer, missing a payment, consolidating the wrong way) means losing PSLF eligibility entirely. Borrowers pursuing PSLF should verify employment/payment qualifying status annually with the PSLF servicer, not rely on calculations here.

Private Loan Consolidation (Limited Options)

This calculator addresses only federal Direct Loans. Private loan consolidation is a different beast: you typically cannot consolidate private loans into federal programs, and consolidating federal loans into private loans eliminates PSLF eligibility forever. Private loan consolidation lenders often offer lower rates (if you have good credit) but eliminate federal protections (income-driven repayment, deferment, forbearance, forgiveness). Consolidating federal to private only makes sense if: (1) you have excellent credit (660+ score) and can secure a rate 1%+ lower than your federal rate, (2) you're not pursuing PSLF, and (3) you have stable high income (can afford payments even if income drops). For most borrowers, keeping federal loans in the federal system is safer despite potentially higher rates.

The Interest Accrual Problem on Income-Driven Plans

Income-driven plans have an insidious issue: if your monthly payment is less than accruing interest, your balance grows even though you're paying. Example: $300,000 loan at 6% interest accrues $1,500/month in interest but your SAVE plan payment might be $200/month. Your balance grows $1,300/month even with payments. Over 10 years, your balance might grow from $300,000 to $400,000+ despite making 120 payments. The forgiveness at the end eliminates this debt, but it creates taxable income (likely 30-40% of forgiven amount = $30,000-40,000 unexpected tax bill on a $100,000 forgiveness). This is the "tax bomb"—widely publicized but borrowers still underestimate it. Plan for significant taxes if pursuing forgiveness.

Income Changes and Recertification Burden

Income-driven plans require annual recertification of income. A promotion or job change means recalculating your payment within 30 days of income change (or your payment spikes to potentially 10% of discretionary income). This creates admin burden: you must track income changes, submit documentation, and update payments. Missing recertification deadline causes payments to default to the standard plan ($2,000+/month on $300K debt). Income-driven plans work best for borrowers with stable income; high-income volatility creates recertification complexity and payment unpredictability.

Limitations and Assumptions

• Poverty Line Estimates: This calculator uses 2024 poverty guidelines. Actual values change annually and vary by state.
• Interest Rate Stability: Fixed rates assumed. Variable rate loans may have interest changes affecting calculations.
• Income Fluctuations: Calculator uses current income. Income changes require recertification and payment recalculation.
• No Interest Accrual Modeling: Income-driven plans may accrue unpaid interest during low-payment periods, but this is not calculated here.
• Forgiveness Tax Status: As of 2023-2024, forgiveness tax consequences remain uncertain pending legislative changes.
• Loan Type Limitation: This applies only to federal Direct Loans. Parent PLUS loans, private loans, and other types use different rules.
• Public Service Loan Forgiveness: PSLF eligibility and requirements not included in this calculation.