When you graduate from college, your federal student loans automatically go on the standard 10-year repayment plan.
But they don’t have to stay there. In fact, Citizens Financial Group found that 60 percent of borrowers expect to pay off their student loans in their 40s, about 20 years after graduating from college.
comDepending on your finances, the standard 10-year time frame might be too short to pay off your debt. Fortunately, there are ways to push back the deadline.
Here are five ways to add more time to your student loan repayment plan — plus, one major downside to consider before changing your loan’s terms.
1. Apply for an income-driven repayment plan
By adding extra years to your repayment term, you can reduce your monthly student loan bills. One of the most effective ways to do so is by getting on an income-driven repayment plan. These four plans are only available for federal student loans:
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
Although each has its own rules and requirements, almost anyone with eligible federal loans can qualify. If your payments on an income-driven plan would be lower than your payments on the standard plan, you can likely make the switch.
REPAYE and PAYE typically cap your monthly payments at 10 percent of your discretionary income. IBR limits your payments to 10 or 15 percent, depending on when you took out your loans, and ICR makes them no more than 20 percent.
Since these plans cap your monthly payments, they also extend your repayment term to 20 or 25 years.
Not only could an income-driven plan ease the burden of student loans, but it could lead to loan forgiveness. After 20 or 25 years of on-time repayment, you could get any remaining balance forgiven.
If a 10-year plan puts too much pressure on your finances, a 20- or 25-year income-driven plan could help you breathe easier.
2. Opt for the Extended Repayment Plan
As its name suggests, the Extended Repayment Plan also gives you more time to deal with your student debt. Unlike the standard term, the Extended Repayment Plan gives you 25 years to pay off your federal student loans.
As a result, your monthly payments will be a lot lower. Let’s say you owe $35,000 with a 5.70% interest rate. On the 10-year plan, you’d pay $383 per month. But with a term of 25 years, you’d pay just $219 per month. That $164 reduction could be a huge help for your monthly budget.
Plus, your monthly payments don’t have to be fixed on this plan. If you expect your income to increase in the future, you could instead opt for graduated extended payment. While a fixed monthly payment stays the same over the life of your loans, a graduated payment slowly increases every few years.
Your monthly payments won’t increase indefinitely, though. A graduated payment will never exceed three times any other payment. So if you started with a bill of $100 per month, your final bill would never be greater than $300.
Most federal loans are eligible for extended repayment, including Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans, and Stafford Loans. If you want to put FFEL Loans on this plan, though, you’ll have to consolidate them first.
Although this plan can help ease your financial burden, it might not lower your monthly payments as much as an income-driven plan would. Explore both options to figure out which one works better for your budget.
3. Refinance for new loan terms
Although income-driven and Extended Repayment plans are both useful options, they come with a major limitation: They’re only available for federal student loans. Refinancing, however, is available for both federal and private student loans.
When you refinance student loans, you pay off your old debt by taking out a new loan with a different lender and repayment terms. Most lenders offer repayment periods of five, seven, 10, 15, and 20 years. If you’re looking to add more time and lower your monthly payments, you could refinance to a 15- or 20-year repayment term.
If you ever decide to pay the loan off faster, you can do so. Most lenders don’t charge any fee for paying off your loan ahead of schedule.
Not only can refinancing get you a longer repayment term, but it could also save you money on interest if your new loan comes with a lower rate. Typically, lenders give the best rates to people with strong credit scores and high, steady incomes.
Benefits aside, refinancing does have a potential downside: If you refinance federal loans with a private lender, you’ll lose access to federal programs. Anyone who might need an income-driven plan or other federal protection in the future might want to hold off on refinancing any federal student loans.
4. Put your loans into deferment or forbearance
If you’re strapped for cash, you could apply for deferment or forbearance. Both options temporarily pause your loan payments. The government offers forbearance for up to 12 months and deferment for up to three years. Plus, some private lenders also let you pause payments if you lose your income and aren’t able to keep up with payments.
To qualify for federal student loan deferment or forbearance, you must meet specific criteria. Your income must fall below a certain level, for instance, or you must be enrolled at least half-time in a qualifying school. Medical school students in residency also typically qualify.
Both options let you pause payments without going into default or hurting your credit, but interest continues to accrue in most cases. So even though you’ve paused payments, your loan amounts might keep growing.
As for private student loan deferment, the exact policy is up to the discretion of the lender. CommonBond, for instance, offers forbearance for up to 12 months, and Earnest allows 36 months of deferment for grad students. If you have private student loans and need to pause your payments, talk to your lender about your options.
Taking longer to repay debt means more interest
Adding years to your repayment plan can result in a lower student loan bill. But even though you’re paying less each month, you’ll pay a whole lot more in the long run.
Why? Two words: compound interest.
Interest accrues on most loans all the time. Let’s return to that example of $35,000 in student loans at a 5.70% interest rate. On a 10-year repayment plan, you’d pay $10,998 in interest. But on a 20-year plan, you’d pay $23,736; over 25 years, you’d pay as much as $30,739 in interest alone.
As you can see, adding time to your repayment plan helps you in the short-term, but it costs you money over the long run. Before pushing back your repayment deadline, weigh all the financial consequences.
Choose the repayment plan that’s best for your budget
When it comes to student loan repayment, you have several options. By sticking to the standard plan, you’ll be debt-free in 10 years — or even sooner if you make extra student loan payments.
But the bills on this plan might overwhelm your budget. If that’s the case, buying more time with one of the options above could help. If you’re able to pay more as the years go on, you could always move the deadline up again.
By increasing your income with a side gig, for instance, you can make extra payments. That way, you’ll get out of debt years ahead of schedule and be that much closer to financial freedom.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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|2.56% - 7.40%||Undergrad & Graduate||Visit SoFi|
|2.57% - 6.32%||Undergrad & Graduate||Visit Earnest|
|2.58% - 8.12%||Undergrad & Graduate||Visit Lendkey|
|2.80% - 7.02%||Undergrad & Graduate||Visit Laurel Road|
|2.54% - 6.65%||Undergrad & Graduate||Visit CommonBond|
|2.90% - 7.34%||Undergrad & Graduate||Visit Citizens|