When you owe money on federal student loans, you often have much more flexibility than with most other types of debt. That’s because you may be able to choose from a number of different payoff options, including a standard payoff plan and an extended repayment plan.
So what is the extended repayment plan?
There are actually two options: one with fixed payments or an extended graduated repayment plan in which monthly costs go up over time. But what both plans have in common is that you will take longer than the standard 10 years to repay student loan debt. This long timeline will make monthly payments cheaper, but total repayment costs more expensive over time. If you’re struggling to pay your student loans or if your goal is to keep monthly debt costs as low as possible, this guide to the extended repayment plan can help you decide if it’s right for you.
What is the extended repayment plan?
The extended repayment plan is one of several student loan repayment plan options available to borrowers with federal student loans.
- The standard repayment plan requires you to pay loans off over 10 years (or over 30 years for some consolidated loans). Monthly payments are fixed during the entire repayment period and are calculated to ensure your loan is paid in full within a decade. Each payment will be higher than with the extended repayment plan, but you’ll pay the lowest amount of interest over time since you won’t pay interest for as long.
- The graduated repayment plan also requires loans to be paid off within 10 years (or 30 for some consolidated loans). The difference is that payments start out lower and increase every two years, rather than staying the same during the entire payoff time.
- The extended repayment plan gives you 25 years to repay your student loans. You can choose between fixed or graduated payments. Regardless of which option you select, your monthly payments will be calculated so your loan is fully paid off in 25 years. Monthly payments will be lower than with the standard or standard graduated plans, but you’ll make many more payments and will pay more in interest over time.
- Income-driven payment plans: Income-driven plans also give you 20 or 25 years to pay loans, but your payments are based on a percentage of income rather than based on the amount it would take to pay your loans in full by the deadline. You may not pay off your entire balance if your monthly payments are low, so some of your debt may be forgiven.
With federal loans, you normally have the option to change payment plans as needed. That means if you are having trouble paying the amount required under the standard or graduated plans, you can select one of the other options.
How will the extended repayment plan affect your student loan payments?
You don’t just need to know the answer to the question, what is the extended repayment plan. You also need to know how this plan will affect monthly payments and total costs over time.
- If you choose the extended repayment plan, your monthly payments are fixed for the entire payoff time. Payments are calculated so that your loan is fully repaid after 25 years.
- The extended graduated repayment plan starts your payments lower and then increases the amount you’ll owe every two years. The idea behind this is that your income will likely go up over time, making those higher payments easier. But each payment is still calculated to ensure you will be debt-free in 25 years.
With the extended repayment plan or the extended graduated repayment plan, you will more than double the length of time it takes to pay back your loans compared with the standard plan. During the extra 15 years you make payments, you’ll pay a lot more interest. However, since you will make 300 total payments rather than 120, each monthly payment can be much smaller. The specifics of your loan will determine exactly how much the extended payment plan saves you each month — and how much extra it costs over time. You can use the Federal Student Aid Loan Simulator to explore how each different payment plan may work for you.
Who should consider an extended repayment plan or extended graduated repayment plan?
Many borrowers are better off with plans aside from extended repayment or extended graduated repayment. Ultimately, the choice is up to you. Here are a few reasons most borrowers opt for other plans:
- The standard plan offers you the advantage of becoming debt-free more quickly and saving on interest over time.
- Income-driven repayment plans offer you the benefit of a reduced payment, just as extended plans do. But the big benefit of an income-driven plan is that your payments will be capped as a percentage of income, so they may be even more affordable. You’ll also be eligible for forgiveness if your monthly payments aren’t high enough to pay your balance in full before the end of your repayment term.
What other options do you have to lower payments?
For federal student loan borrowers, an income-driven payment plan is likely a better choice to reduce monthly payments rather than the extended repayment plan or graduated repayment plan. If you have private student loans, on the other hand, none of these options are available. You’ll have to stick with the payment plan that you agreed to when you originally took out your loan. If you’re interested in changing the terms of your loan, student loan refinancing may be the right choice for you. Student loan refinancing involves taking out a new loan from a new private lender, typically at a reduced interest rate compared with your current loan. Although you can refinance federal and private loans, if you’re taking advantage of federal benefits, you may choose only to refinance your private student loan debt. When you refinance private student loans, you don’t give up any benefits since you already have debt with a private lender. Plus, you may enjoy benefits like lowering your interest rate and choosing a repayment plan that better fits your goals. It’s worth looking into each of these different solutions if you want to make sure to find the best way to repay your student loans.
