Still Struggling with Student Loans? Choose Student Loan Extended Repayment Plans NOW!!

US students owe a staggering $1.74 trillion as education loan debt, currently! Private student loan debt is only $130.28 billion out of the mammoth figure. The rest are federal student loans. Let’s learn about Student loan extended repayment in this article.

In just 1 decade, student loan debt has piled up 42% more. It’s time we talked more about Student Loan Extended Repayment. Readers may not know much about it, as most Americans choose the wrong repayment strategy.

FinanceTeam is here to help you learn more about it. Often, students find themselves unable to pay off the loan principle. They stay put until they barely clear the interest amount. The more they delay repayment, the more charges they accrue.  

The Student Loan Extended Repayment plan can be a one-stop solution to the problem. It allows you to clear your loan dues over an extended period. Generally, you get a 15-year time slot to make payments. However, this scheme extends the period to 25 years.  

Meanwhile, the US dept of Education says that all students won’t be eligible for the Student Loan Extended Repayment Plan. So, let’s learn more about it and how you can benefit from it.

Understanding Student Loan Repayment Options

If you know about the different repayment plans, you can choose the instrument that suits you. Here are the details you need to know about:  

Overview of standard repayment plans

There are two standard repayment plans. You should try to accommodate your loan within these two. Firstly, we have the Standard repayment plan. If you choose this plan, you have to repay your loan within 10 years or 120 months. The minimum monthly premium you must pay is $50.  

Secondly, there is a Graduated Repayment Plan for you. Under this plan, the repayment starts with a paltry monthly installment, which increases with time. However, the time for payback remains the same (10 years).  

Discussion of income-driven repayment plans

The US dept of Education approves four student loan income-driven repayment plans. These are:  

1. Income-based repayment: This scheme is helpful for Direct Loan Borrowers. Here, your family size, monthly income and total loan amount would be considered to cap your monthly installment.  

2. Pay as You Earn: This plan has two pillar strategies. Firstly, you must not pay a dime more than your standard plan amount. Secondly, your monthly EMI won’t exceed 10% of your monthly income.  

3. Revised Pay as You Earn: This scheme forgives any pending dues of undergraduates after 20 years of qualifying payment towards the loan. Meanwhile, the tenure for students with GRAD Plus loans is 25 years.  

4. Income Contingent Repayment: This plan adjusts your monthly payments annually based on the adjusted gross income in the latest FY.  

5. Income Sensitive Repayment: This scheme adjusts your monthly payable based on your total income. However, the max loan repayment period remains 120 months or 10 years.  

Introduction to Extended Repayment Plans

The extended repayment scheme is available to federal student loan borrowers after 1998. To enjoy the benefits of this scheme, the students must have a loan of $30,000 at least.

What is an Extended Repayment Plan?

It is a plan that extends your loan repayment time to 25 years. Generally, it spans from 10 to 15 years. However, there are precise eligibility criteria.  

As I mentioned earlier, the two eligibility criteria for Student loan extended repayment are:  

1. Your Direct loans or FFEL program loan principle should be at least $30,000.

2. You should not have any balance on your Direct or FFEL loan programs as of Oct 7, 1998, or the date after that when you got the loan.  

How to apply for an extended repayment plan?

Before applying, you must ensure you’ve paid the minimum monthly dues for 120 months. After that, you can contact your loan servicer to convert your loan repayment scheme to the student loan extended repayment plan.  

Hence, the servicer will evaluate if you meet the essential criteria. However, you need the US Education Dept’s formal confirmation letter. The servicer will handle the formalities on your behalf.

Types of Extended Repayment Plans

The Education Dept allocates a student loan extended repayment plan that suits your debt, loan type, and monthly income provisions:

Pros and Cons of Extended Repayment Plans

The extended repayment plans are undoubtedly beneficial. However, there are some downsides as well. Let’s discuss both.  

• Advantages: lower monthly payments, more time to repay
• Disadvantages: more extended repayment period, more interest paid overtime

Alternatives to Extended Repayment Plans

These repayment plans may be suitable for you as well. Understand the terms and perks of the plans and get out of debt fast:

Income-driven repayment plans

There are two sorts of income-driven repayment plans. These are income-contingent repayment and income-based repayment plans. The income-contingent repayment plan allows you to pay only 20% of your discretionary income monthly. However, you can also opt for a 12-year fixed repayment plan.

Choose the one that offers you a lower monthly EMI. However, the income-based monthly repayment plan is even more lucrative. It implies you must spend only 10 to 15% of the monthly income as loan EMI.

Loan forgiveness and discharge options

There are multiple Student Loan forgiveness programs to waive off your pending dues from student loan schemes. However, there is only one essential qualifying criterion.

Firstly, you have to clear 120 installments before you are deemed eligible. Secondly, some schemes need you to clear off at least 50% of the loan amount.  

Refinancing or consolidating student loans

Loan consolidation allows you to compress all existing student loans under one scheme. Consequently, pending charges like penalty of late fees on multiple loans ward off. And you enjoy a lower interest rate that suits you.  

On the other hand, refinancing is an option for private student loans. You can refinance your existing loans at a better rate and appeal for suitable payback tenure.   

Managing Your Finances During Extended Repayment

Your student loan extended repayment is the last leverage. Once you fail to repay within the extended period, you will be left with the only option of appealing for loan forgiveness. However, loan forgiveness is difficult for students who avail themselves of the extension scheme.  

So, here are some tricks you can try to clear your dues within the extended span:

• Budgeting and prioritizing expenses with 25% of the income budget going towards loan clearance on a mandatory basis  
• Setting strategies for paying off high-interest debt, other than student loans, before applying for an extension. It might include steps like applying for part-time jobs or freelance projects.  
• Building credit and long-term financial stability with punctual monthly payments for 25 years.  

Conclusion

If you need to reduce your monthly loan installments and require more payback time, then apply for Student loan extended repayment. However, you have to start with the Standard Repayment Plan first. You may consider extended repayments when you cannot meet the standard terms.  

Extended repayments mean you would pay greater interest over a longer time frame. So, it is ultimately more effective for you.

Do check out the eligibility criteria for Student loan extended repayment. Also, consider all three variants of extended repayments. However, the US dept of Education will allocate you the scheme that suits your records.

Call to Action

Review each scheme well. Do your research. Meanwhile, set a budgetary plan to pay off loans comfortably. I am sure you have benefitted from the information provided related to extended repayment, especially when it comes to student loans.

If you are not sure, comment your doubts in the section below. We will reply to your queries promptly.

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