How the Extended Repayment Plan Could Lower Your Student Loan Payments

extended repayment plan

“I love deadlines. I love the whooshing noise they make as they go by.” Douglas Adams probably wasn’t talking about student loans, but he might as well have been.

If you have a ton of debt, the standard 10-year deadline for paying off your loans can feel impossible to meet.

Fortunately, the Extended Repayment Plan could push back that deadline. In fact, this plan could snag you 15 extra years to pay off your federal student debt.

Does that sound less stressful? Read on to find out if the Extended Repayment Plan could work for you.

How the Extended Repayment Plan works

The Extended Repayment Plan gives you more time to pay off your federal student loans. The standard plan sets a 10-year deadline, but the Extended Repayment Plan gives you up to 25 years. Because you have extra time to pay back your debt, your monthly payments are smaller.

On this plan, you have two options for your student loan payments: fixed or graduated. On the fixed plan, your monthly student loan bills stay the same throughout repayment. If you choose extended graduated repayment, your payments will start out low and increase every two years.

Under the Extended Repayment Plan, your payments will never be more than three times as big as any other payment. If you begin with a payment of $200 per month, for example, your final payment will not be higher than $600.

Although your monthly payments will be lower under this plan, you’ll also be in debt for longer. Instead of paying off your balance in 10 years, you’ll be working on that student debt for 25.

Your student loans must be eligible

The Extended Repayment Plan is best for borrowers with a large amount of debt. In fact, you must have at least $30,000 in federal student loans in order to be eligible for this plan.

You also must have at least one of the following loans:

  • Direct Subsidized Loan
  • Direct Unsubsidized Loan
  • Direct PLUS Loan
  • Direct Consolidation Loan
  • Subsidized Federal Stafford Loan
  • Unsubsidized Federal Stafford Loan
  • FFEL PLUS Loan
  • FFEL Consolidation Loan

Let’s say you have $35,000 in Direct Loans and $5,000 in FFEL Loans. You could put your Direct Loans on the Extended Repayment Plan, but your FFEL Loans wouldn’t qualify. The only workaround would be to consolidate your student loans before applying.

Further, both Direct Loan and FFEL borrowers can’t have had an outstanding balance before Oct. 7, 1998. As long as you have at least $30,000 in Direct or FFEL Loans that you obtained after Oct. 7, 1998, you could be eligible for the Extended Repayment Plan.

Extended Repayment Plan can ease your financial burden

The major benefit of an Extended Repayment Plan is that it lowers your monthly payments. Let’s say you have a $35,000 student loan with a 5.00% interest rate. You might struggle to keep up with the $371 monthly payment on the standard plan.

By applying for the Extended Repayment Plan with fixed payments, you could lower your bill to $205 per month for the life of your loans. If you choose the extended graduated plan instead, you’d start out paying $146 per month before gradually working your way up to a payment of $333 per month.

Even with graduated payments, your final bill remains lower than it would be on the standard plan. That extra money back in your pocket could be just what you need to take control of your finances and avoid student loan default.

Beware of the drawbacks

Although lowering your monthly student loan bill might sound tempting, there are also cons of the Extended Repayment Plan.

  • You’ll be in debt for way longer. This plan adds 15 extra years to the typical 10-year standard plan. You’ll be making student loan payments for a huge chunk of your life.
  • You’ll pay a ton of student loan interest. Let’s take that example of a $35,000 loan again. On the standard 10-year plan, you’ll pay $9,548 in student loan interest. On the Extended Repayment Plan with fixed payments, you’ll pay $26,382. On graduated payments, you’ll pay $32,045 in interest.
  • Other plans can get you lower monthly payments. Income-Based Repayment, for example, could lower your student loan payments to 10 percent of your discretionary income.
  • This plan doesn’t qualify for Public Service Loan Forgiveness (PSLF). If you’re working toward Public Service Loan Forgiveness, you need to make 10 years of qualifying payments. Payments on the Extended Repayment Plan are not eligible.

Before choosing the Extended Repayment Plan, weigh the pros and cons. Although this plan could help in the short-term, it’s less appealing when you consider the long-term costs.

Compare all your federal student loans’ repayment options

If you’re looking to lower your monthly student loan payments, the Extended Repayment Plan isn’t your only option. Check out these other federal student loan repayment plans to make sure you’re choosing the best plan for your wallet.

Some of these plans could lower your monthly payments even more than the Extended Repayment Plan. Plus, several of them offer loan forgiveness after 20 or 25 years of on-time repayment.

Consider the big picture before changing your plan

Before jumping on the idea of lower student loan bills, make sure to explore all your federal student loans’ repayment options. As you compare the plans, take a bird’s-eye view of both the short- and long-term consequences of your decision.

The Extended Repayment Plan could be a lifesaver if you’re hovering near default. But you also must be prepared for 25 years of student loan payments.

Of course, even if you extend your repayment terms, you can always pay your student loans off faster. An extra payment here and there can go a long way toward getting you out of debt faster.

If the Extended Repayment Plan seems right for you, contact your student loan servicer to enroll.

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