Understanding the Extended Repayment Plan

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Updated on Monday, September 14, 2015

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Did you know that having Federal student loans gives you a host of repayment options to make paying back your loans easier? Along with income-driven repayment plans (Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn), you can also choose the Extended Repayment Plan.

Why is it beneficial? It does exactly what it says – it extends your repayment period from the standard 10 years to up to 25 years, resulting in a much lower (and more manageable) monthly payment.

How Does It Work?

While having a lower monthly payment sounds great, you should be aware that extending the term of your loan (and any loan, for that matter) would result in paying more money over the life of the loan. That’s because interest has a longer time to accrue. Let’s look at an example.

Say your student loan balance is $20,000 on a 10-year repayment term with a 4.29% interest rate. Your monthly payment is $205. Now, extend that repayment term to 25 years. You end up with a monthly payment of $109. It looks like you’re saving almost $100 per month, which sounds like a great deal.

Not so fast. We need to look at the interest being paid on the loan. In the first scenario, you’ll pay $4,630 in interest, for a total of $24,630. In the second scenario, you’ll pay $12,638 in interest, for a total of $32,638. That’s a difference of almost $8,300.

That’s not to say the Extended Repayment Plan isn’t worth it, but you should know exactly what it entails before signing up for it. Note there are two ways to make payments: you can choose a fixed monthly payment, where your payment stays the same each month, or a graduated payment, where your monthly payment increases at set points over the repayment term.

The graduated repayment is useful for graduates just starting out in their careers who aren’t earning much of a salary. As you gain more experience, your salary will grow, and you’ll be able to afford the increased payments in a few years.

The fixed repayment is good for those who would rather have peace of mind. The future is uncertain, and even if you advance in your career, you could decide to change paths and take a pay cut down the line. The consistent lower payments provide you with a nice buffer.

Regardless of which option you choose, the best way to use the Extended Repayment Plan is to pay the minimum payment (if that’s all you can afford) until you get yourself in better financial shape. As soon as you can afford to start paying extra toward your loans, you should. There’s no rule that says you need to take all 25 years to pay back your balance.

If you’re interested in doing the calculations on your own (and you should, to ensure you’re actually saving money in the long run), use this repayment estimator from the U.S. Department of Education. You can see which repayment plans you’re eligible for, and you’ll be able to compare monthly payments between all the plans to see which offers you the lowest payment.

Which Loans Are Eligible?

Even if you have Federal student loans, only select loans are eligible for the Extended Repayment Plan. It goes without saying, but if you have private student loans, they’re not eligible for any of the Federal repayment plans.

According to studentaid.ed.gov, if you have the following loans, you can enter into the Extended Repayment Plan:

  • Direct Subsidized or Unsubsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans
  • Subsidized and Unsubsidized Federal Stafford Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans

Your loans need to have been disbursed after October 7th, 1998, and you must have an outstanding balance of $30,000 or more to be eligible. Direct Loans and FFEL Program loans are considered separate, so if you have $33,000 in FFEL Program loans, but only $15,000 in Direct Loans, you’d only be eligible for Extended Repayment for your FFEL Program loans. If the amounts were switched, you could only choose the Extended Repayment Plan for your Direct Loans.

How Can I Change My Repayment Plan?

The easiest way to make changes to your repayment plan is to contact your student loan servicer. Most will let you request this option online via your account, but if you’re unable to find it, call or email to inquire about it.

Who Benefits the Most from the Extended Repayment Plan?

Income-driven repayment plans typically have stricter requirements that need to be met, such as proof of financial hardship. They’re also calculated based on your annual income. The Extended Repayment Plan only requires you to have $30,000 in eligible student loans, making it easier to qualify for. If you’re struggling to make payments and don’t qualify for any other repayment plan, the Extended Repayment Plan could be a good solution.

To avoid paying more over the life of the loan, only take advantage of the lower monthly payment when you need to. Consider paying extra every month you can so you can pay your loan off sooner than 25 years. Keep in mind that the Extended Repayment Plan isn’t like income-driven repayment plans – your balance won’t be forgiven; you’re expected to pay your loan off within the amount of time given.

What if I Have Private Student Loans?

If you have private student loans, you’re not eligible for the Extended Repayment Plan, but you could look into getting a loan modification, or you could apply to refinance your loans. Either of these options can extend your repayment term, offering lower monthly payments.

Go With the Plan That Makes the Most Sense For You

Remember to use the Repayment Estimator to compare your options. The Extended Repayment Plan may not provide you with the lowest monthly payment, or you may not be eligible for it (the Estimator will show you). Educate yourself on your options first, and then contact your student loan servicer to see what advice they can offer you. They’ll be able to place you in the repayment plan that best suits your financial situation.

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