While it may seem to many new graduates that their only options when paying back student loans is to repay the amount under the standard plan or to not pay at all, this is simply not the case. There are many options available to those beginning to repay loans that can help payments fit into most any budget. One of these plans, the extended repayment plan for student loans, is designed specifically for those that have a high dollar amount of student loans that will cause repayment before the general 10 year term is up very difficult.
How Does it Work?
An extended repayment plan for student loans allows graduates to take longer than the standard 10 years to pay off their loan. The payments are still a fixed amount each month, but they are typically substantially lower than they would be under a standard plan. The amount of time that the loan can be extended depends on the amount of the loan. Guidelines are as follows:
• Less than $7,500- 10 years
• $7,500-9,999- 12 years
• $10,000-$19,999- 15 years
• $20,000- $39,999- 20 years
• $40,000-$59,000- 25 years
• $60,000 and up – 30 years
What Loans are Eligible?
The following loans are eligible for an extended repayment plan:
• Direct Subsidized
• Direct Unsubsidized
• Direct Consolidation Loans
• Subsidized Federal Stafford Loans
• Unsubsidized Federal Stafford Loans
• FEEL PLUS Loans
The Good and the Bad
This type of loan repayment plan can actually be a good option for most graduates. It allows for lower payments than those that would be made under a standard or graduated plan, but the payments remain fixed for the term of the loan. There are drawbacks however; most notably the fact that the overall loan cost will end up being more.
Extended Repayment Plan vs. Loan Consolidation
It is important to remember that an extended repayment plan is not a consolidation loan. It is possible to get a consolidation loan, which is a totally separate loan with different terms that pays off all loans and allows you to make one monthly payment for a period of time. Because of this option, many students and graduates overlook the extended repayment option. The extended plan applies to the original loan. There is no new loan. It is possible that the extended plan can save interest over a consolidation loan, and therefore it is definitely worth exploring.
Extended Repayment Plan Compared to Other Repayment Plans
This plan truly has all of the pros of a standard repayment plan. The only benefit lost is the lower cost of the loan over the long term, but that is mitigated by the lower monthly payments. The payments are also generally lower than those that are required toward the end of a graduated repayment plan, and in fact the overall cost may be similar under both plans.
When making the decision, it is important to consider all factors involved. If the lower payments are needed for payments to be made at all, then an extended plan is definitely the way to go. However, if a lower payment would simply afford a higher standard of living, the consideration should be balanced with the higher cost of the loan over time, and the fact that paying the loan off quicker will free up more cash sooner. The only way to determine the best course of repayment action is to crunch the numbers and see what happens.