Is the Extended Repayment Plan right for you?
Updated on September 23, 2020
Federal student loans give borrowers several different repayment plans to make paying back their student loans easier. The Extended Repayment Plan is one such option, and many graduates prefer it because it has lower monthly payments.
However, simply because the majority of borrowers use the Extended Repayment Plan doesn’t mean you should. What works for another borrower may not work for you, so here’s a guide that can help you determine whether the Extended Repayment Plan is right for you.
So, what is the Extended Repayment Plan?
In this plan, borrowers pay a lower monthly repayment over a 25-year term instead of the standard 10-year period. Since it has longer terms, you pay less each month compared to other repayment options such as the Standard Plan.
Unfortunately, longer terms cost more in the long run as your interest accrues over time. The Extended Repayment Plan is suitable if you:
• Have a low starting salary that won’t increase any time soon
• Have a high income but have huge financial obligations
• Are looking for low monthly payments
Under the Extended Repayment Plan, you have the option of choosing fixed monthly repayments or graduated ones. For the latter, your monthly repayments increase every two years. If you have a low starting salary that will increase in the coming years, graduated monthly repayments are a wise option.
This way, you can increase your monthly payments and clear your debt earlier than later, reducing the amount you pay altogether.
Cons of the Extended Repayment Plan
1. Not everyone is eligible for the Extended Repayment Plan as you must have more than $30,000 in outstanding Direct Loans to qualify.
2. As mentioned earlier, you’ll pay more interest over the life of your loan when compared to other shorter repayment plans.
Is it right for you?
Whether the Extended Repayment Plan is right for you depends on your income, student loan debt, and goals. For example, if you plan to repay your loan as early as possible, this will not be the right repayment option.
Contact StudentLoanify today to learn more about student loan repayments.