An extended repayment plan is intended to give college grads a little breathing room in repaying their student loans. This payment option lets you pay off your college debt in as little as 12 years or as many as 30 years, depending on how much money you borrowed while in school.
Any time you lengthen your payment term, you're automatically tacking on additional finance charges for the privilege of carrying that debt for extra years and making smaller monthly payments. Under the extended payment plan, your minimum monthly payments will be $50, just like with the standard option, but you have longer to knock out your debts. By stretching out your payment term, the extended option gives you a short-term financial break so you don't blow your whole budget on student loan payments.
The extended plan is best used when your income is low or when you've had a series of financial problems that truly call for you to stretch out your student loan debt. Because you'll be tacking on extra finance charges in the long run, you have to weigh the long-term cost of doing that against the short-term benefit to your bank account in the here and now.
The worst thing you can do with an extended plan, however, is put your student loan debt on autopilot and just forget about it. I made this mistake for years to be honest. I had a very comfortable $186 a month student loan payment that I stretched out unnecessarily even when I could afford to make larger payments. I did pay extra—from time to time whenever I thought about it. But for the most part I simply let the payments remain on automatic deduction from my bank account and I didn't give them a second thought. A smarter strategy is to stay on top of your student loans and, even if you have the luxury of paying a smaller amount because you're on an extended payment plan, go ahead and make additional payments when feasible. This will save you lots of time and money in the long run.
Some of you may be thinking: "Thirty years! I don't want my student loans to turn into a mortgage." That's smart thinking. For many college grads, especially those of you with six-figure debts outstanding, an extended payment plan may be the most affordable option available. The upside is: by elongating those payments over so many years, you quite naturally are going to decrease the monthly amount that you're shelling out in the present time. If you've got large credit card debts, kids, medical bills, and many other financial obligations, an extended repayment plan is something to consider seriously.
Are you ready for the black-and-white numbers about how much more you'll pay by extending the life of your student loans? Look at the following analysis:
In this scenario, the monthly loan payment was calculated at 239 payments of $152.67 plus a final payment of $151.61. To swing these payments, you'll need to earn a minimum annual salary of $18,320.40, assuming you want to devote 10 percent of your pay to repaying your student loans. Note how using a loan term of 20 years, instead of the standard 10-year repayment plan, reduces your monthly loan payment by $77.49, or 33.7 percent. The bad news is that it also increases your total interest paid by $9,020.46, or 118.4 percent.
Article Title : Extended Repayment Options
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