What is Extended Repayment Plan?

Not all of us think about repaying a student debt before availing it. Not that we don’t want to repay it, but usually we leave it to the future. Student debts have become a need for almost every student considering higher education in the US. A student loan is specifically designed for students to pay for their education expenses and carry substantially lower interest rates and suitable repayment schedules to help students pay them back when they are capable of.

Student loans are different from scholarships and grants and are supposed to be paid off.  There are mainly two types of student loans. Federal student loans are funded by the federal government. Interest rates on a federal loan are fixed and in some cases, tax deductible. Other than government agencies; banks and finance companies also offer student loans. Interest rates on private student loans are generally variable and higher than federal student loans. 

Repaying a student loan is not as easy as availing one. With time, the policy makers and economists have realized the need of making loan repayment an easier task for people. This realization took the form of various student debt forgiveness programs that simply eliminate the student debt for some borrowers under special circumstances.

But not every borrower is eligible for loan forgiveness. What has helped the masses pay off their student loans is called Student Debt Repayment Plans. The federal government through its Department of Education has come up with different loan repayment plans to help borrowers with different financial conditions and needs to repay a student loan without much financial difficulty or default. Some of these plans are income- based repayment plan, Income- contingent repayment plan, Pay as you earn plan, Income sensitive repayment plan, standard repayment plan and graduated repayment plan et cetera. 

What if someone tells you that you can pay back your student debt in not ten years, rather a much longer time, say twenty five years? Sounds like a breather right? It indeed is one. As the name suggests, extended repayment plan extends the repayment period for an individual to help him/ her pay off a student loan with much greater ease. Under the extended repayment plan, monthly payments are either a fixed or a graduated amount, i.e., an amount that increases in every two years. The borrower needs to make regular monthly payments towards the debt for a total of twenty five years. Due to extension of lifetime of the debt, this repayment plan also demands a lower monthly payment from the borrower.  

Eligibility for Extended loan repayment plan

A student with Direct Unsubsidized or Subsidized Federal student loan, direct consolidation loan, Direct PLUS loan, Unsubsidized and Subsidized Federal Stafford loans, Federal Family Education Loans Program PLUS or consolidated loan is eligible for standard repayment plan of repayment.

Extended repayment plan does not demand any initial income eligibility specifications. Direct loan borrowers should not have any loan balance outstanding as on October 7, 1998 or on any date after October 7, 1998 when the loan is availed. Also, there must be an amount higher than $30,000 in the pending direct loans. Similar eligibility conditions apply to Federal Family Education loan borrowers, i.e., they also need to have no outstanding balances as on October 7, 1998 or later when they take out a loan and must have $30,000 in their FFEL loans. Taking an example let us suppose that a borrower has $40,000 of FFEL loans and $15,000 of direct loans; in this case, he can avail the extended repayment plan of repayment for FFEL loan but not for Direct loans. 

Advantages and Disadvantages of Extended Repayment Plan

The biggest advantage that this repayment plan offers to the borrowers is the extension of time to repay a student debt. It is indeed better to have an option of paying a lesser amount monthly than to be in a pressure of higher monthly payment and subsequent default on loan. This repayment plan offered by the US Department of Education allows a borrower to also realize some savings due to lower monthly payment towards debt that can help an individual manage his finances better.

By reducing the instances of default by facilitating repayment, the plan benefits the economy as a whole. As a matter of fact, however, it can not be ignored that by extending the time frame of debt, the total amount of interest payment made towards the student debt rises as compared to a standard ten year repayment plan. Also, the conditions imposed on the eligibility of the loan sometimes, make it difficult for the borrowers to avail the benefits even though they might be in great need of the plan. 

Conclusion

Like all repayment plans, extended repayment plan has its own set of advantages and disadvantages. Therefore, it becomes important for the borrower to analyse the terms and conditions before availing the benefit of this repayment plan. The plan has been an effective means of repaying a student debt for people with the right amount of knowledge about the plan and dedication to repay one’s debt.

Also, a borrower also has an option to switch to another student debt repayment plan in case he finds himself unable to pay for monthly loan repayment under a particular repayment plan. These plans are just a means of repaying a debt, what is truly essential for a loan repayment, or for that matter any success is self- motivation to work hard and achieve.