If you plan on entering a lower-paying field or have accumulated a significant amount of debt, you might consider using the extended repayment plan to pay back your federal student loans. This program is available for several types of Direct and Federal Family Education Loan (FFEL) program loans, including:
- Subsidized and Unsubsidized Direct Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Subsidized and Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans
- FFEL Consolidation Loans
Additionally, you must have borrowed at least $30,000 per loan program. For example, if you borrowed $34,000 in Direct Loans and also received $15,000 in FFEL loans, you could only use the extended repayment plan for your Direct Loans. Your outstanding balance on your FFEL loans would be too low to qualify.
You can choose between graduated or fixed monthly payments – graduated payments start out low and gradually increase over the life of your loan, while fixed payments are the same amount each month. Your repayment period can be up to 25 years (or 300 payments). Because this repayment period is longer than those for the graduated or standard repayment plans, your monthly payments will generally be lower with the extended plan.
Even with an extended repayment period, making prepayments can be a great way to repay your loan faster. There are no extra fees for prepaying federal loans, and even paying $5 more each month can reduce your overall cost. If you choose to make a prepayment, tell your lender to apply it to the principal of your loan, otherwise they may treat it as an early payment. If you aren’t sure who your lender is, you can find that and other information regarding your federal student loans using the National Student Loan Data System.
As an example, assume you borrowed $36,500 in loans with a 4.8% interest rate, and you choose to make fixed monthly payments over the course of 300 months. Each monthly payment would amount to $209, with $63 going toward your principal and $146 going toward interest. Over time, more of your monthly payments will go toward reducing principal. The total cost of your loan would be $62,743, with $26,243 being interest. If you choose graduated payments, your first payment would be about $192 and your last payment would be around $238.
Assuming the same loan information, here’s what you would pay if you chose a different repayment plan:
- A standard repayment plan with 120 fixed payments would give you monthly payments of about $384, for a total cost of $46,030, with $9,530 being interest.
- A graduated repayment plan with 120 payments would start you off with monthly payments of about $254 and end with payments of about $575. The total cost of your loan would be about $47,847, with $11,347 being interest.
The extended repayment plan is an excellent choice for those who don’t mind a longer repayment period or do not qualify for certain hardship-based repayment plans. Although your loan will collect more interest over its life, this plan often offers lower monthly payments than other plans. The USA Funds Student Loan Repayment Calculator can give you insight into how different repayment methods will ultimately affect the cost of your loans.
Remember that you can change repayment plans once per year, and if you experience financial problems, talk to your lender. Not making payments can cause your loan to default, which will negatively affect your credit score for years to come.