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Using an Extended Repayment Plan for Student Loans

How increasing the term on a standard repayment plan can lower your student loan payments to better fit your budget.

A standard repayment plan balances with your income
A standard student loan repayment plan is the fastest, most cost-efficient way to eliminate federal student loan debt. But it also has the highest monthly payments, which can be tough on your budget. An extended repayment plan increases the term, which lowers the monthly payment requirement.

How extended repayment works for basic federal loans

An extended repayment plan can be used when you want to reduce the monthly payments on a standard repayment plan. In normal circumstances, if you don’t include a Federal Direct or FFEL Consolidation Loan, the term on this plan would be 10 years.

If you have a high volume of debt you want to include, then the monthly payments may be high. If they’re too high, you can extend the term from 10 years to 25 years. This lowers the monthly payments because it spreads the debt repayment out over 300 payments instead of 120.

When you use and extended plan, you can only include like types of debt in a single plan. This means you can only include all of your Direct Loans together in one plan and FFEL Loans would be repaid separately.

How it works if you have federal consolidation loans

As noted above, the term on a standard repayment plan is typically 10 years, as long as you don’t have a Federal Direct or FFEL Consolidation Loan that you want to include. If your repayment plan includes one of those, then the term on the standard plan is 10-30 years. The exact length depends on your “total education loan indebtedness.”

If you repayment plan includes consolidation loans, you can still use extended repayment in most cases. For example, if your total indebtedness is $15,000 then the term on the standard plan would be 15 years. But you could use the extension to spread the payments out further over 25 years.

The only instances when you can’t use plan extension would be when the plan already has a 25-year term. That means if your total education loan indebtedness is more than $40,000 you can’t really use the extension. The term on your standard plan is 25 years already.

Eligibility requirements for extended plans

In order to extend the term from 10 years to 25:

  • Direct loan borrowers must have at least $30,000 in outstanding Direct Loans obtained after October 7, 1998; there also must be no outstanding balance prior to that date.
  • FFEL borrowers must have at least $35,000 in debt on FFEL loans obtained after October 7, 1998; again, there must be no outstanding balance prior to October 1998.

If you have both types of loans, then you have to meet both criteria listed above to include all of your loans. Otherwise you can only include the type that meets the eligibility requirements. That means if you have $40,000 in Direct Loans and $12,000 in FFEL, then only the Direct Loans could be included in your plan. The others would have to be repaid separately or in a separate plan.

Extended repayment, increased cost

The key thing to note about extended repayment is the increase in total cost this creates. Each payment cycle you add means another month to apply interest charges. As a result, extending the term means you significantly increase the total cost of repaying your debt.

It’s important to consider term extension carefully before you choose to do so. Lower monthly payment may make it more convenient because you have money to burn on other things. However, it’s better for your finances long-term if you clear away your debt quickly. So if you can afford the shorter term, chose that option instead!

Another option for an extended repayment plan

Standard repayment plans are not the only federal repayment plan option that can be extended. This also can apply to a graduated student loan repayment plan. This is known as an extended graduated repayment plan.

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Article last modified on August 31, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: Using an Extended Repayment Plan for Student Loans - AMP.