Pros and Cons of the Extended Loan Repayment Plan

Written by: Kristyn Pilgrim
Updated: 5/11/20

You work hard after you graduate from college, but you nevertheless may find yourself in a tight financial spot. Even if you love your job, it may be a lower-paying position, so you struggle to pay living expenses and your regular monthly student loan payments. One option that helps many Americans is the extended repayment plan.

Managing student loan debt is a hot topic right now. With 54% of young adults who attended college trying to pay this debt, and a national student debt total of $1.6 trillion, it is no wonder so many lawmakers and financial advisers are concerned about payment options. The average college graduate in 2018 had between $20,000 and $25,000 in student loan debt.

The extended repayment plan allows people with higher levels of debt to have lower monthly payments and spread repayment out over 20 or more years. 

How Does the Federal Student Loan Program’s Extended Repayment Plan Work?

College graduates who took on more than $30,000 in student loan debt from the federal government can qualify for an extended repayment plan. Changing to this form of student loan payment allows you to spread out monthly payments over 20 or 25 years, so you pay much less each month.

Most federal student loans qualify for this program, including: 

  • Direct subsidized loans
  • Direct unsubsidized loans
  • Direct PLUS loans, except for parent PLUS loans
  • Direct consolidation loans
  • Subsidized Federal Stafford loans
  • Unsubsidized Federal Stafford loans
  • Federal Family Education Loans (FFEL)
  • FFEL PLUS loans
  • FFEL consolidated loans

To qualify for the program, you must:

  • Have more than $30,000 in outstanding federal student loans, either FFEL or direct loans
  • Have no outstanding loan balance as of Oct. 7, 1998, or the date you obtained your student loan

The second point means that only one loan can qualify for an extended repayment plan. For example, if you have $35,000 in direct loans and $10,000 in FFEL loans, you can only apply extended repayment to the direct loan.

Under extended repayment:

  • Your monthly payments are either a fixed or graduated (starting small then getting bigger) amount
  • Payments are made each month for up to 25 years
  • You’ll have lower payments than with many other payment plans

The Department of Education (DOE) has an extended loan repayment estimator tool available online, so you can see how much lower your monthly payments will be once you switch. This helps you determine if you should switch to this form of loan repayment or if you would benefit from remaining on a standard repayment plan.

Extended repayment is similar to forms of income-driven repayment except you can change your payment schedule to either fixed monthly payments or graduated monthly payments that go up as your income goes up.

Under the extended repayment plan, you can always pay more each month if you get a financial windfall, receive a raise, or are otherwise able to repay your loans. This helps you reduce how much interest you will pay over the life of the loan.

The Pros and Cons of Extended Loan Repayment

Switching your monthly payments to an extended repayment plan is very helpful for those struggling with underemployment, unstable employment, low-paying jobs, or personal struggles keeping them from maintaining a job.

There are many benefits of switching to extended repayment: 

  • You’ll have much smaller monthly payments
  • You can choose either fixed monthly payments or graduated payments
  • Graduated payments go up a little bit every handful of years
  • You do not need to sign up for this plan every year, unlike income-driven plans

However, there are some downsides to the extended repayment plan, as there are for other payment plans:

  • Anyone with less than $30,000 in federal student loan debt is not eligible for this plan
  • You pay more in interest over the life of the loan
  • Monthly payments are lower, but they are not based on your income, unlike income-driven plans

What Are the Options for Other Types of Student Loans?

Any changes you make to your loan should start by contacting your student loan’s servicer. This is the company your school switched management of your federal student loans to after you graduated. It is likely you have been getting invoices from them already as you pay down your loans.

If you struggle financially, choose to participate in Public Service Loan Forgiveness (PSLF), or have significant debts, extended repayment plans are a good option, but you may benefit more from income-driven repayment plans. These include income-based repayment and income-sensitive repayment, which adjust your monthly payments based on your annual tax filings since these tell the federal government how much money you make every year.

Significant federal student loan debt qualifies you for extended loan repayment, but if you have a mix of both private and federal student loans that together surpass $30,000, you do not qualify. You must find another way to pay down your private loans, and then pay down your federal loans.

There are no income-based options for private student loan repayment. However, many graduates manage their loans by refinancing their private student loans if they can get a better interest rate, and then paying those off while they get income-based repayment for their federal student loans.

A great strategy to manage a combination of education loans is to focus on paying one down first and then pick another to focus on. Move down your list of student loans until you have completely paid them off.

There is no penalty for paying federal loans down faster than the amount of time given. Private student loans, however, may have some penalties, like lowering your credit score.