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Extended Repayment Plan: Details and Alternatives

Repaying student loans with an Extended repayment option for a long period seems attractive. As the number of months increases, payment per month decreases. Hence, borrowers feel like they save money from debt repayment. However, in reality, they end up paying substantially more than what they owe. That is the reason why you need to know every detail of the Extended repayment plan before enrolling. If the plan does not fit your expectations, you can also enroll in alternative repayment options for free. 

This guide explains the Extended repayment option in detail and introduces you to other plans to consider.  

What is an Extended Repayment Plan?

As the name suggests, an extended repayment plan allows borrowers to pay out debt in an extended- up to 25 years- period. Such a long payback period results in lower monthly payments compared to other repayment plans like a Standard repayment. Hence, borrowers with financial struggles can enroll in this option.

Which Loans Qualify?

Not all borrowers can apply for an extended repayment plan. The eligibility criteria require a qualifying loan which can be a Direct or FFEL loan. You can find the comprehensive list of eligible loans below:

  • Direct Subsidized/Unsubsidized/PLUS/Consolidation Loans
  • Federal Stafford Subsidized/Unsubsidized Loans
  • FFEL PLUS/Consolidation Loans

Unfortunately, private student loans or Perkins loan borrowers cannot qualify for this repayment option.

Other Eligibility Conditions

Besides qualifying loans, there exist conditions for the outstanding balance. Whether you have Direct or FFEL loans, these conditions should be satisfied:

  • No outstanding balance on October 7, 1998; or
  • No outstanding balance when obtaining loan after October 7, 1998; and
  • The outstanding balance should exceed $30,000

For instance, if your FFEL loan balance is $20,000 and Direct loan balance is $31,000, you can apply for an Extended repayment plan only for Direct student debt. 

Payment Rate

Extended Repayment Plan

Repayment plans are distinguished based on their payback periods and repayment rate. As mentioned before, the Extended repayment plan requires 25 years. When it comes to the monthly loan payment amount, it can be fixed or graduated. However, the payment amount is usually lower than what is required under the Standard or Graduated plan. 

Fixed repayment means you pay the same amount every month. However, with graduated repayment, you first pay lower amounts. Then your payments increase every two years. If you believe that your finances will get better in the future, you can choose graduated repayment. 

Use Loan Simulator

A loan simulator is a tool on the official Federal Student Aid website. This tool helps borrowers check their eligibility for different repayment plans and determine how much they will pay under each option. It is essential to use this tool to get some idea about your options. Additionally, you might discover that the Extended repayment plan does not provide the lowest payment amount that you need. 

Extended Plan and Forgiveness

An Extended repayment plan seems attractive to borrowers with its long payback period. As the period gets longer, those massive monthly payment amounts get lower. Borrowers, fascinated with more manageable payments, think that an Extended plan is all that they need. 

However, such a benefit of having a lower monthly payment amount does not come without its disadvantages. While Income-driven repayment plans forgive the remaining balance after 20-25 years, the Extended plan does not grant such forgiveness. So, unfortunately, you need to pay the whole amount to get rid of the debt. 

Besides, this plan is not suitable for borrowers who want to apply for Public Service Loan Forgiveness. The forgiveness program requires payments with Income-driven repayment plans. If you make payments with an Extended plan, you will not progress toward forgiveness. Yet, if you have already made this mistake, you can consider the Temporary Expanded Public Service Forgiveness program. This program grants forgiveness to borrowers who made payments, some or all of them, with the wrong repayment plan. Keep in mind that the funding for this option is limited. 

High-Interest Payments

As mentioned, the Extended repayment plan prolongs the payback period. However, it results in a higher payment in the long run. You might be enjoying low monthly payments, but your total cost can double. 

For example, if you get $60,000 student loans, you repay around $80,000 with Standard repayment. However, this amount doubles with a fixed Extended repayment plan and triples with a graduated one. Therefore, you will not save money from debt payments. 

Alternative Repayment Plans

The extended repayment plan is not your only option if you have federal loans. Luckily, the government cares about borrowers and offers multiple repayment options. As a result, student loan debtors choose the most suitable plan and repay the debt peacefully. 

The following sections will discuss different repayment plans and compare them with the Extended repayment plan. Yet, if you are not sure which plan to choose, you can contact your loan servicer, use a loan simulator tool or get a third-party debt specialist’s help.

Standard Repayment Plan

This plan is famous for its accessibility. Direct loans, Federal Stafford Loans, all PLUS, and Consolidation Loans qualify for this repayment option. 

The Standard repayment option requires fixed payments over the payback period. The borrower can repay the debt in 10 years as opposed to 25 years provided by the Extended repayment plan. As the payback period is shorter, the total cost of debt is lower. 

However, the monthly payment amount can be higher than what is required under the Extended plan. Usually, the borrowers pay a minimum of $50 per month. Hence, this plan is helpful for debtors who want to get rid of loans fast. If you are looking for affordability, it might not be the right choice. 

Keep in mind that the repayment period is 30 years for Consolidation loans. Additionally, you cannot qualify for Public Service Loan Forgiveness with this repayment option. 

Graduated Repayment Plan

The Graduated repayment plan is accessible to many borrowers as the Standard plan. It covers the same loan types, including Direct and PLUS. The main difference of this repayment option is that the borrowers do not make fixed payments. Instead, their monthly payments are lower in the beginning, and they pay higher amounts later. The repayment rate increases every two years. As a result, the borrowers repay the outstanding balance in 10 years and 30 years for those who have Consolidation loans. 

Keep in mind that your payments will exceed what is required under the Standard repayment plan by time. Additionally, this plan also does not qualify for forgiveness. 

Overall, again, as the repayment period is short, monthly payment amounts will be higher. So if you look for affordable repayment with the lowest possible amounts, this plan might not be the best choice. However, you can eliminate your student loans quickly. 

Income-Driven repayment Plans

Among different repayment plans, Income-driven repayment can be most suitable for financially struggling borrowers. These plans are based on income level and family size. If your income is high and your family is small, you will pay higher monthly amounts. On the other hand, borrowers with low income, and big families, will get lower monthly payments. As debt repayment is adjusted to your earning, it becomes more affordable for borrowers. 

Income-driven repayment plans also provide forgiveness opportunities. Once you complete the payback period, the remaining debt is forgiven. So, for example, if your payback period is 20 years, you will get rid of the whole debt in 20 years. 

Additionally, if you enroll in these programs, you need to recertify your income and family size every year. In this way, the Education Department updates your details and determines a new loan repayment amount for the year. 

Lastly, only Income-driven plans qualify for Public Service Loan Forgiveness. Therefore, if you want to apply for this program, you need to make your payments through these plans. Income-driven repayment has five categories which we discuss in the following sections. 

Revised Pay as You Earn

Revised Pay as You Earn requires the lowest repayment rate among different Income-driven plans. Hence, you will pay only 10% of your discretionary income for student loans if you choose this plan. Keep in mind that discretionary income is the amount left after you pay taxes and other necessary spendings. Hence, it becomes more affordable for borrowers to meet their debt obligations without cutting essential expenses.

You need to repay debt for 20 years or 25 years with this program. The shorter period is for undergraduate students. Meanwhile, graduate and professional students repay debt for 25 years before they get complete student loan forgiveness.

This repayment option is only for Direct Subsidized, Unsubsidized, PLUS, and Consolidation loans. 

Pay as You Earn

Another program created to help borrowers in need is Pay as You Earn. It is available to new borrowers after October 2007. Besides, you should have received your first disbursement after October 2011. 

If you are a new borrower, you will pay 10% of your discretionary income for this repayment plan. It will take 20 years to repay the debt. 

Keep in mind that monthly payment will not exceed the Standard repayment plan with this option. Besides, you need a high debt-to-income ratio to qualify for this option. 

Income-Based Repayment

Extended Repayment Plan

Income-based repayment also requires a high debt to income ratio. However, it is available both to new borrowers and others. For example, if you are a new borrower after July 2014, you pay 10% of your discretionary income. Meanwhile, others pay 15% of discretionary income as the repayment amount. Similarly, new borrowers repay student loans in 20 years while others repay in 25 years.

This option might have the same payback period as the Extended repayment plan, but it can require lower monthly payments. 

Income-Contingent repayment 

If you have Subsidized, Unsubsidized, PLUS, or Consolidation loans, you can qualify for an Income-contingent repayment plan. This plan might require 20% of your discretionary income or a fixed payment. The fixed payment is calculated over 12 years. Otherwise, it takes 25 years to pay out the debt. Compared to the Standard plan, you will pay more over time. 

Additionally, if you have Parent PLUS loans, you can enroll in this plan once you consolidate them. An Income-contingent program is also available to borrowers who want to qualify for Public Service Loan Forgiveness. Besides, any remaining amount after the payback period is forgiven. 

Income-Sensitive Plan

This repayment option is only available to FFEL loans. As FFEL loans do not qualify for Public Service Loan Forgiveness, this program does not help you progress toward this forgiveness option. It takes 15 years to pay student loans fully. The payment rate depends on annual income, and it is set up for a maximum of 10 years. If you have any questions regarding this program, you can contact your loan servicer or lender. 

How can I Change My repayment Plan?

When you first get your loan, you will choose or be selected for a repayment plan. However, you can change your repayment plan whenever you want. Besides, changing a repayment option is entirely free. Therefore, if you receive calls that require you to pay a fee for a new repayment program, do not follow their instructions as they are scammers. 

If you want to change your plan, contact the loan servicer. A loan servicer will help you find the right plan and enroll in it. In case you do not know who the loan servicer is, you can check in your FSA profile. 

What about Private Loans?

Unfortunately, above mentioned repayment options are only available to federal student loan borrowers. If you have private student loans, you cannot apply for these plans. Instead, you need to contact your lender and learn about your repayment options. 

Most lenders do not provide high flexibility when it comes to repayment. Others offer a few options such as Interest-only, Monthly fixed, or Principal-only. Check your loan terms or ask for further information from your lender.

What if I cannot Afford Repayment?

Extended Repayment Plan

Unfortunately, currently, many borrowers face financial struggles. Due to the COVID-19 pandemic, many people lost their jobs, or their income levels decreased. Although the loan repayment is suspended till February 2022, once repayment resumes, borrowers will face a huge issue- continuing repaying student loans. 

If you are one of such borrowers, you have several options. First, you can request loan forbearance or deferment status from your loan servicer. As a result, you will not be required to repay the loans for a few months. However, this solution is for the short term. Besides, interest can continue accruing, which means your total obligations will be higher when forbearance or deferment ends. 

Another option can be enrolling in a more affordable repayment plan. Preferably, you need to enroll in an Income-driven repayment option. This plan can even require $0 monthly if your income level is extremely low. As it is based on your income and family size, you will allocate only a small portion of your earnings for repayment. 

Make sure you contact your loan servicer and ask about your options. They can enroll you in the right plan as soon as repayment resumes. 

How to Choose a Repayment plan?

If you are lost among different repayment plans and you cannot decide which plan to enroll in, you have several options. First, you can use the loan simulator tool as mentioned above. This tool will help you to get an early look at what plans exist and if you qualify. 

Next, you can contact the loan servicer. Loan servicing companies are responsible for dealing with your loans, handling the billing, choosing the right repayment plan, etc. They can advise you on the best repayment option based on your finances. 

However, unfortunately, many borrowers complained about the quality of the loan servicer’s recommendations during recent years. Additionally, some loan servicers were sued because of misleading borrowers and not advising the best strategies for debtors. 

Hence, it would be better if you get a third-party debt expert’s help. Debt specialists, like those in Student Loans Resolved, can analyze your finances and choose the most suitable option for you. Whether you want to enroll in an Extended repayment plan or another, our specialists can help you make the best decision.